I can speak to this. For a while in 2010 I was completely broke after leaving my first job out of college, which I hated, and having some other employment opportunities fall through. Having that little money changes your decision making process about absolutely everything. Obviously every financial decision is effected, even the tiniest purchases weigh into bigger questions like "will I have enough money in my bank account to pay rent on the first?" It can reach a point where you can barely purchase a soda without any stress over spending money. And at least for me who is fortunate enough that this was not a chronic way of life, one thing that weighed on my mind was how I was spending my time and whether I was doing enough to make sure I wasn't so broke all the time. I could imagine that at some point that sort of thinking goes away and you believe poverty is a way of life. But I can think of a variety of other meta concerns stemming from poverty that could plague your thoughts.
Mentally poverty can be an all consuming condition. I've come to think of it as comparable to programming in a high level language versus programming in a low level language. If you're financially stable you are like someone programming in a high level language who has tedious tasks like memory management taken care of for you. Whereas if you live in poverty before you can get to some of the really productive work you have some hurdles to overcome.
Another way of thinking of the difference between being financially stable and being poor is that if you are poor it is constantly a necessity to think about short term outcomes first so your mind gets clogged up with them. It is very difficult to get to think about your long term good because failing to properly address your short term outcomes could end in complete disaster. This is why I cannot take seriously comments like this on HN: https://news.ycombinator.com/item?id=6301856 although thankfully the commenter does acknowledge he is being cynical and disrespectful.
I observe this at the grocery store. The ones I visit have people from a wide range of economic status. When I go in, I grab what I need and don't think about price - it's almost always just the staples like bread, milk, fruit and eggs, and I know with certainty that I can afford it. And that I don't think about price is literally true until I'm told how much it costs, then I pay it, then I promptly stop thinking about it. I know my eating habits, I know my income, and I know that my eating habits are well within my budget, so it's not worth spending any more cycles on it.
Contrast this with the people who, upon learning that some item in their basket is not actually on sale, put a different item back. Or split the cost of the groceries across a WIC card and cash. Or use five coupons for a small basket.
For me, going to get groceries is an afterthought - I'm out of certain food, I'm out of my place, so I'll pick them up. But for some other people, it's clear to me that visiting the grocery store is an exercise in risk management and weighing priorities. In other words, being poor is hard work.
I have grown up not quite in poverty, but still in a single parent home with mum having to work multiple jobs at times to support me and my sister. Thinking about money has rubbed off on me.
Nowadays I personally have zero money problems on account of my freelancing business doing great. But going to the grocery store habits learned over half of my life still kick in. Do I buy $5 rice or $3 rice? Does that pack of tuna cost less per kilogram than that other pack of tuna even though they're the same brand? And so on.
Buying steak at a restaurant still feels like "Holy crap man, what are you doing, chicken will be just as nice and it's like half as expensive."
I suspect it will take years to unlearn this and I honestly envy people whose parents did not instill this kind of thinking in them. It looks easier.
Easier doesn't mean better. You learned risk aversion and prioritization skills from your mothers habits. The fact is that you don't need to employ that aversion at the moment, but its a tool you have if you do need it.
The number of people I see who blow though heroic gobs of money astonishes me sometimes. I realize that my metric is entirely variable, but I'm talking about paying 2-3x for a similar good simply because its closer at hand, or offers some entirely minor benefit. This behavior isn't an issue when the wind is at your back, but I've had the unfortunate experience of helping, and eventually just watching, people that had a bad turn that just got worse because they didn't know how to stop their bad spending habits when they couldn't support them anymore.
Your mother gave you a gift. Its a gift with a mental toll, but in the long run its a fine price to pay for it.
There are a lot of people out there who make a ton of money and still stuggle financially. For some people, income is like RAM or CPU power: whatever you upgrade to, you'll fill it all up soon.
I also play little games in the store with trying to find deals and such, even though I don't need to. It's far better than the other way around. Certainly there's a middle ground, but it seems to be really hard to hit.
This is true. I think that past a certain level, though, you don't get the real poverty experience. You get stress, but it's a different sort of stress. Like, yes, you might be having some trouble with your mortgage month-to-month, but selling the yacht is always an option. They don't have to work out exactly how far into starvation they'll have to get to make ends meet this month.
You are completely wrong. Easier is better, most of the time. In a 21st century developed economy it's vastly more efficient to spend your time thinking how to improve your income than how to optimize small expenses. Same principle as the famous "Premature optimization is the root of all evil".
No longer poor, but I still price compare, because I'm tired of being screwed, not because cash is tight.
Enjoy that grass fed medium rare top sirloin. Life is good.
Just don't pay top dollar for imported beef pumped full of steroids and antibiotics. I merely want what I pay for. Top dollar for indestructible hipster glasses? No problem. Tack sneaky $2.00 fees on to my phone bill? Hulk Smash!
One of the most interesting domestic exercises is to think about how much different items cost in terms of other items.
A steak dinner (say, $50) is worth just a bit more than 3 double-meat Chipotle burritos with drink and chips and guac (say, $14). Each of those burrito meals is worth a bit more than 4 dozen eggs (say, fancy-pants eggs at $3/dz.) Each of those dozen eggs is worth 20 packs of shitty ramen ($.15/pack).
It's an exercise worth practicing, lest you find yourself one day needing to use that calculus.
EDIT:
This is also why buying Mississippi Mud ($4/qt. of passable black & tan) or Arizona RX energy drinks (~$1/can) is a good investment, as is rolling your own cigarettes or smoking pipes.
Each of those dozen eggs is worth 20 packs of shitty ramen
Careful: at a point, qualitative aspects matter. Your eggs are proteins and fats (both of which are essential to survival -- your body cannot manufacture certain proteins and EFAs). Ramen is virtually 100% carbohydrate. While it's going to provide you with energy, it's not going to sustain other essential bodily functions.
And I really have a hard time parsing tobacco consumption as fiscally responsible under any terms.
We all have our addictions. Being automatically prejudiced against one that happens to shorten your life isn't as useful as realizing you may be addicted to something far worse, e.g. spending most of your time thinking about dating or worrying how to shape yourself to fit the die that some institution has cast for your life, like college or work.
Take the idea of evolution. As pg points out in his essay, the reason evolution was so difficult for people to accept is that species seem to be unchanging, static fixtures. It would be absurd to suggest that a dolphin used to walk around on land, yet evidence shows that they did, a couple million years ago.
It turns out that the idea of evolution is useful in other contexts. Most of the best software was written by following a procedure strikingly similar to how a creature evolves. The idea of "release early, release often" is the idea of evolution applied to the process of writing software. In fact, this idea is so valuable that we probably wouldn't be having this conversation without it, because neither Viaweb nor Arc nor YC would exist.
It was normal for society to be unaware of evolution the same way we're unaware of the spin of the Earth. And when people started to look at the evidence, it was normal for society to reject it. It wasn't until Darwin, an established scientist near the end of his life, that society allowed the idea to take hold.
The consequence is that those who live a life that society lays out for them are almost universally denied access to the best ideas, because the best ideas are the ones you haven't thought of yet.
It's tempting to believe that you're resistant to the effects of society laying out a normal path for you to follow. Aren't we free to think whatever we want? After all, no one can prevent us from thinking, right? Actually, that's exactly what happens. "Here is where you live. Here is where you play. Here is where you learn. Here is where you work. These are the hours you may relax." That cycle is too powerful to resist unless you actively try to break it. It stamps its seal onto your brain. For 16 hours a day, your thoughts are not your own -- they are owned by whomever pays you. The reason is because even though you are technically free to think whatever you want whenever you want, most people never do. At work, people think about work, or about coworkers. At school, you think about school or (more commonly) about other students.
That sounds quite a lot like an addiction. In the same way a drug user becomes obsessed with acquiring their fix, most people are obsessed with living whatever life society tells them to be living. And in practice that means most people are limiting themselves to a small fraction of their potential, because your potential stems from your ideas, and your ideas come from your thoughts, and your thoughts are mostly not your own.
I believe those addictions are the real ones to be avoided. And avoiding smoking is good while you're at it, but probably doesn't matter as much.
This is a strange defense. You are basically defending an addiction by saying that it is better than smoking crack or doing heroin. That doesn't really defend your addiction, it is just comparing it to other things you could do that would be even worse.
I don't really care if you smoke or whatever, it is just rather expensive in the short term and potentially outrageously expensive to the point of bankruptcy in the long term. Also there are shorter term health implications that kind of suck as well. It is certainly not a good investment.
This is a weird statement: I ate at a ramen restaurant a couple of nights ago. It was quite healthy, I think I had pork, egg, spinach and seaweed in mine. There are plenty of good ramen restaurants branded from Japan. It is not the best food, but it is not the worst food either.
Ah, I forget hacker news has an American biased perspective, where ramen just means cheap crap you get in packets, not the fancy stuff we have in Asia.
And of course, ramen in Japanese just means "Chinese noodles", plenty of people in china eat them everyday in china and they are just fine. Imagine if some Chinese poster said "Yeah, careful with using that white bread as a currency unit. It sure is cheap, but it's the kind of food that will mess up your health long-term".
No, you're encountering the bias that $.15 ramen causes. And the HN bias towards pedantry (not always unfair).
15-cent ramen is crap everywhere that you can discuss a $50 steak dinner and $3/dozen eggs. The egg in your ramen, by those units, would have cost 25 cents alone, and is clearly excluded.
If you only ate wonderbread for all 2k calories of the day, it would mess up your health -- just as eating $0.125 packets of ramen would mess up your health if that was all you ate.
Not all ramen is $.125 a pack though, most of it in the world is actually not! It is just stupid and shallow that people think "ramen" would just mean the crap that they sell in American grocery stores.
Why not just use the real name of what you are talking about? "Instant noodles," "instant ramen," or "fangbian mian" would be much more accurate and much less bizarre.
> In North America, Japanese instant noodles were imported starting in the 1970s bearing the name "ramen", causing the term "ramen" to be often used in North America to refer to instant noodles.
So there you go. I'm sure it will disappear in time, as awareness of asian cuisine develops.
And this is hackernews, where all the readers must be from North America? I doubt the poster is even in San Francisco, where there are lots of decent ramen restaraunts to be found. On that same wiki page, there is nary a pic to be found of instant noodles.
Not sure why you're making such a big deal about it. Misuse of loan words is common in many languages, not least Japanese. Why, not 3 hours ago I was talking to someone who is about to rent a マンション (mansion) in Tokyo. Needless to say it is not any kind of mansion an english speaker would recognise, and I didn't see any pictures of same on the japanese wikipedia page. [1]
It happens. It will probably happen less now the world's so interconnected. Not worth four comments in a row!
[1] For the uninitiated, in japan a "mansion" basically refers to an apartment in a building built to a certain quality.
Well, yes, it is an english speaking website, so I imagine the colloquial usage of 'ramen' probably refers to whatever the colloquial US usage of 'ramen' is.
Ah, but keeping track of cost/benefit is a solemn duty in a capitalist economy. The only power you as an individual consumer have against vendors and producers is the power of choice - the choice to buy which product at what price at which location. No matter whether you have plenty of money or have to turn each currency-unit twice before spending it, if you forget about this you will get pilfered. You will lose track of current market prices for commodities and end up paying through the nose because the vendor in your location has noticed he can increase prices without losing business, thus increasing profits. Others who have less to spend will take their business elsewhere and before you know it you'll have created yourself the groceries-equivalent of an Apple store.
So if you happen to see fewer and fewer people swapping products in their baskets because they are not on sale or using coupons or hands of small change or whatnot, take heed and do some comparison shopping.
"If you're financially stable you are like someone programming in a high level language who has tedious tasks like memory management taken care of for you. "
This is exactly the correct metaphor.
I had to, at one point, stop using my coworking space and start working from home because I couldn't deal with the occasional overhead of "Huh, shit, I forget to bring lunch--can I afford to eat out today? Do I have enough gas to commute?".
Money is this magical barrier to all sorts of annoying daily minutiae--even a little bit is enough to let you shrug off the effects of suboptimal decisions. Being able to simply buy a lunch when you forgot to bring one can change your whole afternoon of productivity.
This is why you don't need to pay your programmers too much but you do need to pay them enough that they can focus more on their job and not on trivial items.
In hindsight, nicely presented lunches, gym (and perhaps babysitting?) on campus apparently serve a very real purpose. It makes sense that they are minimizing distractions. (When you think of it this way, employees should not have to pay income tax for free lunch at work but that's a different conversation.)
However, your parent comment made me think a little:
>It can reach a point where you can barely purchase a soda without any stress over spending money.
Do people with money not stress about spending money? I mean sure, I have a decent wage rate. According to the New York Times[0], a little more than half of Americans make less money than I do. However, it is difficult to shake the fear. I am by no means wealthy and I have no alternate source of income. If I am out of the work force for a few months, I will have to take shelter with my (retired) parents. I am by no means the most frugal person in the world. I have a nice Nexus 4 phone and I make whimsical purchases like going to the water park ($40+ for about three hours) and I eat out and stuff a few times a week. However, there is that fear in the back of my head that says what happens tomorrow? I would like to go to grad school. Will I be able to afford it?
The article makes me feel like the wealthy people don't have worries like that. I kind of envy that.
I don't think it's that people with money NEVER stress about spending money - it's a matter of degree. Most software engineers are good earners by US standards, and as such, going to the water park for $40 doesn't really register. Buying a $1 soda isn't even worth thinking about. However, buying a $20,000 car would certainly lead to some thoughts like "Can I afford this? What won't I be buying because of this car?" The advantage that a good income provides is that you're not stressing about daily purchases - not that you stress about nothing at all.
This is exactly it. Practically everyone has some legitimate financial concerns but when your financial concerns get to the point that every single purchase feels like it's effecting your bottom line in a meaningful way is when there's an extra layer of stress on your day-to-day thinking.
I find having a good income just brings on the stress of ensuring that you are saving enough for when you no longer have a good income, and so that $1 soda is still a mental hurdle, even if you can easily afford it.
I've found that automating my finances make a lot of those stresses go away.
I don't have to worry about accidentally overspending in my checking account and not being able to pay my bills because my bills are paid from a separate account, and they're all on auto-pay.
Likewise, my savings and retirement investments are automated and I just know that enough is going there. I have a checking account, which is labeled "Spending" and that's what I use to buy groceries, etc. It doesn't matter that it's literally dwindled down to almost $0 a couple times a month because my bills and investments are automatically managed.
My wife and I lived pretty poor for the first 3 years of our marriage, and only the last couple years have I been earning enough to be able to "set-it-and-forget-it" with my finances. The reduction in stress is HUGE, though. Earning more money definitely allows you to spend your time thinking about things that don't cause such stress.
Interesting perspective, but I feel like the stress comes from the idea that you can never have enough saved. Even if you schedule a certain percentage of your income to be saved automatically, what if you need that percentage + N in the future? You are ultimately limited by your income, but within those confines, if you squander a $1 now, you won't have that $1 to fall back on in the future.
I have a fixed monthly allowance for whimsicalities. I tends to make things a lot more clear and simple. It also makes it more obvious that buying experiences is a MUCH bigger return on investment than buying stuff.
That Moto X you bought recently? It will keep you satisfied for a while - the same kind of satisfaction that comes from a large, copious meal, or really good sex with someone you're attracted to but not really attached to; but it won't make you happy or bring you peace. However, going out camping with the kids for one night - it's 10x cheaper and brings real happiness, peace, and clarity.
I always thought that, at least for me, there's a level of cost below which I can just buy something on a whim without worrying about whether I can afford it at all, and above which I need to think about it for a minute. When I was in college, that level was about $10. It was a kinda weird transition when I got my first professional job out of college, and I had to get used to that threshold being closer to $1000 instead. I can see how it can be stressful if you're broke enough that your threshold for this is more like $1.
> there's a level of cost below which I can just buy something on a whim without worrying about whether I can afford it at all, and above which I need to think about it for a minute. When I was in college, that level was about $10. It was a kinda weird transition when I got my first professional job out of college, and I had to get used to that threshold being closer to $1000 instead.
And then you get two kids and a mortgage, and that threshold drops like a comet into a neutron star.
I'm currently at the $10 threshold and live with a slightly older roommate whose threshold is more in your current range.
Going out to restaurants, shopping, and general errands are so different for us. I help him out a lot so when we do things I listed he usually covers my meals and everything but I'm still in my lower threshold thinking.
Going to the grocery store and spending $300, to the hardware store and dropping $400, picking up some car part for $100 in a single day and he doesn't bat an eye. I would have exhausted an entire month or more of pay in one day if I did something like that.
Going to a restaurant and seeing a meal costs me, say, 2 hours of work requires me to think about it. If my roommate is covering it might only be 20 minutes of work.
> Do people with money not stress about spending money?
It's a matter of degrees. It's quite different to ask "Can I afford to buy this product? Should I get a cheaper one, or go without?" at every product at the grocery, or ask "Can I afford to continue buying those groceries? Should I change my routine?" once after you pay your grocery bill.
> In hindsight, nicely presented lunches, gym (and perhaps babysitting?) on campus apparently serve a very real purpose. It makes sense that they are minimizing distractions.
One of the less savory goals of these perks is to make sure that you go back to work as soon as possible after you're done with your things. A different perspective is that it's win-win: your employer benefits from less downtime in their employees, and the employees benefit from the perks.
> The article makes me feel like the wealthy people don't have worries like that. I kind of envy that.
There was an excellent article a year or three ago about the stresses that the super-rich go through. I can't seem to find it anymore (I can't recall any keywords besides "super-rich"), but it gives you a sense of how their financial stress is of a different quality.
"Money is this magical barrier to all sorts of annoying daily minutiae--even a little bit is enough to let you shrug off the effects of suboptimal decisions. Being able to simply buy a lunch when you forgot to bring one can change your whole afternoon of productivity."
I also find that poverty detrimentally affects people's self-esteem and confidence. It's hard to avoid seeing income as a societal judgement of your value or ability (even though it really isn't).
I've seen this in my family: if people are laid off or struggling financially, it is just incredibly destructive. Losing a job had more impact on my relatives' happiness than getting a divorce. When I called my family I could tell they still hadn't gotten hired without having to ask. Their voice was depressed and they were frustrated with even the littlest things. It is heartbreaking to witness the effects of poverty in people you love.
I know when I was quite poor in college, thinking about money made my chest tighten and my eyes get hot. I knew I couldn't pay for a fourth year. If the slightest thing went wrong, I was just fucked. There was terrible anxiety, and simmering fury, that wasn't alleviated for years.
While this may not be true to everyone contributing their 2 cents on this piece, most folks here cannot possibly fathom nor understands what it's like to be buried in stress due to poverty or near poverty experiences. I, too, have experienced my fair share of impoverished conditions throughout the course of my life, but it is a bit difficult, even frustrating, trying to explain to someone the effects of poverty. The emotional and physical toll poverty takes on one individual is beyond belief, but some folks will never get it, to be honest. Furthermore, the effects never quite diminish, even if one is able to climb out of poverty, unfortunately.
There is a definition of "social class" I read in the last few years that separates income or wealth from social class. The definitive marker in this definition is the length of time you are able to plan for. Naturally wealth affects this, but is not the be all end all. This definition separates the spendy nouveau riche who blow millions on status markers as still being 'lower class', where thrifty thoughtful people of modest current means would be of a 'higher' social class.
Thoughtful thrifty people of great means are able to think in terms of what their grandchildren or foundation might be doing. The impoverished, disadvantaged of education (Like the SOB who stole my motorcycle only to crash it immediately) might be thinking minutes or hours into the future.
Having been in various economic conditions under varying amounts of stress, I find ritchiea's post dead on the money.
This is how the class system in Britain works. As far as I can tell in the US, wealth is the only input into the social class equation. In Britain there are lots of inputs e.g. where you went to school, your accent, your vocabulary, your occupation, your friends and that of your parents. Wealth is a very small input (except so far in that you can afford to send your kids to the "right" schools where they will make the "right" friends and perhaps ascend a rung).
It is all that and more; it is not just the extra mental effort, it is also the stress that messes with your ability to reason; that makes rationality diminish, and drives emotional instability and crisis creating behaviors.
I agree with a lot of what you're saying but one thing that's always bugged me is how we account for sub-optimal decisions.
What I mean is that if I make 60k per year and I choose to spend very little of it by driving an un-fancy car and cooking all my meals at home and living in a small apartment (perhaps with a roommate) I might be able to save half my net income. Or I could spend nearly all of that income on a bigger place, nicer car and meals out. And then I would potentially be in the exact same mental place as the person in poverty.
What if that gets scaled down to 20k instead of 60k? Is there still nothing I can do to figure out a way to save money? Even if my cognitive load is high due to being poor, which way does causation go? Maybe I consciously decided to live in a bigger place and eat more meals out and as a result I now have more financial worry.
I guess what I'm asking is which way does the causation go? Does being in poverty cause you to become overloaded or does the inability to prioritize well or think under stress cause the poverty? To me this question is neigh impossible to answer because you can't look at a single decision or experiment to determine the outcome.
My naive thinking about this kind of thing is that it's like a betting game. With 50/50 odds you might be up some or down some but in the long run little changes. A hundred $1 bets on a coin toss should leave you with just as much money as you started with. But if the odds change, even just a tiny bit, the outcome of a hundred bets gets really different. Having a slight edge on the house, 51% instead of 50%, can cause you to slowly but surely come ahead of the house. And similarly, going from 50% to 49% can cause you to slowly bleed to death.
Now some math. A 50% chance of winning is the same as a 100% payout. For each win you double your money, for each loss you get nothing. 51% is a 102% payout. 49% is a 98% payout. We'll neglect the notion of a finite bankroll since these are small bets; our bankroll is the full $100.
With 50% odds:
1^100 = 1 so you never make or lose money
With 51% odds:
1.02^100 = 7.24
With 49% odds:
0.98^100 = 0.133
Now of course I don't know how this game would scale to real life. Would a person have only a few chances in a lifetime to make these kinds of "bets" or do you get these chances several times a day? And what is the quantity of the bet? Is it how much I spend, or how much I choose to spend versus my other options of how much to spend?
For example if I feel thirsty I could choose to drink water from a drinking fountain (free) or buy a soda ($2). Is the bet quantity $2 (how much I spend or don't spend) or is it $1 because I either "double my money" (which is to say, I don't spend the $2) or I "lose that bet" buy the soda and spend the $2. I would tend to think it's a $1 bet.
Anyhow I'd love getting some kind of real feedback on the math here rather than just "you're an asshole for not thinking those in poverty are victims"
If you're curious about causality could have saved yourself the trouble of constructing these thought experiments by reading the abstract:
"[W]e examined the cognitive function of farmers over the planting cycle. We found that the same farmer shows diminished cognitive performance before harvest, when poor, as compared with after harvest, when rich. This cannot be explained by differences in time available, nutrition, or work effort...Instead, it appears that poverty itself reduces cognitive capacity."
Buying or not buying a soda seems like a plausible example arithmetically, but in practice any personal budget that does not include a few small luxuries is not a personal budget that anyone is going to follow. If it's not a soda it's going to be a magazine or something else eventually.
Anyway, even if we concede arguendo that those now presently in poverty got there by being stupid and drinking soda they couldn't afford or not finding cheaper lodgings etc., if we somehow removed bad decision makers from the population it wouldn't mean an end to poverty. It would just mean good decision makers would find themselves in poverty. That's because we need at least 5% unemployment to keep inflation at bay, with some number above that underemployed and some number below that dropping out of the workforce entirely. While those states could theoretically be transitory for everyone, in practice they're going to be sticky for a large number. So even in a population of 100% good decision makers you're still going to have some poverty just so the central banks don't run up against NAIRU.
And then, if this paper is correct, those new poor are also going to start having a hard time with congnitive tasks.
The argument wasn't that drinking soda caused poverty. It was a thought experiment about the idea that a person's decisions are cumulative and that a person could lean ever so slightly towards saving and slowly dig themselves out of poverty, or ever so slightly towards spending and find themselves in poverty. And that it wouldn't necessarily take hundreds of year for those decisions to add up, that perhaps it could happen in a few years or a decade.
I definitely don't understand the link between unemployment and inflation. Could you elaborate a bit how full employment causes inflation? I'm not being purposefully dense; I just don't get it.
I know I characterized your argument a bit harshly. It's probably true? In some cases? All? I don't know. The paper doesn't rule it out. It does purport to show that causality does run the other way [as well].
Anyway, I just think it's important to keep in mind how much the macro environment affects which bad decisions get punished and how much. The same mistake that might have got you a nasty email from the boss in the late 90s might have got you fired in the late 00s. The sorting effect you hypothesize might happen, but there's significant variability in how harsh it is, at least a portion of which we have control over.
As for inflation and unemployment, basically all mainstream economists agree that there is something called NAIRU, the non-accelerating inflation rate of unemployment. It's the rate of unemployment below which inflation starts to accelerate. The Wikipedia article isn't very helpful but here it is:
Here is a paper on NAIRU (opening section is a reasonably good general introduction) by Greg Mankiw, who is not my favorite economist but very widely respected [pdf]:
The section on why NAIRU exists basically concludes "nobody knows." Unfortunately this is macroeconomics so there's a lot of just-becausing.
I'm not sure if it's a good theory or not but it's widely believed by economists, especially central bankers. So if unemployment goes above a given rate, which changes depending on circumstances (I think the latest estimate is 6.5%), they're going to tighten the money supply anyway so that growth and especially job growth slow down.
So essentially, it's an unstated national policy in almost every country not to have full employment.
Okay I'm glad to see that it's not something you espouse yourself necessarily, but rather a phenomena that central bankers believe in and thus act accordingly to. Macro stuff is weird and generally wrong IMO but I didn't go through any formal economics. That might make me more qualified or less, depending on your point of view.
At any rate thanks for helping me understand the NAIRU rather than just calling me an idiot.
I agree completely that the macro environment is hugely influential. Saving and frugality are beneficial at one interest rate or naive and foolish at another. It's really strange how the "common sense" idea that you shouldn't spend money you don't have is 100% true at 10% interest but only about 5% true at 1% interest. Especially with inflation at a couple percent.
Your thinking at to low a level, the choices that have real impact are things like:
Where should I live? (Buy? Roommates?)
What kind of car should I get? (Make? Age?)
Sould I learn? (To cook, draw, lisp?)
What kind of Heath insurance do I get? (none?)
What cellphone plan do I get.
What do I do for entertainment?
Should I start packing lunch?
Each of these can be with 100,000+$ at retirement should I get a soda while at I get gass may be habit forming, but it's got little long term impact. Edit: Getting a Starbucks coffie every day or bringing from home is also one of the 100,000+$ choices but only in terms of the habit not crap I forgot to buy beans what do I do?
I was trying to give a single example that fit within the framework of small decisions, but yes there are definitely bigger decisions too.
I would argue that the soda vs water is easily worth $100k at retirement. Two times a day a person might make that choice. That's $4 a day, 365 days a year or $1460. Or $43,800 after 30 years. Once you add in some kind of compounding interest (I know there is very little yield available these days, but that's not the norm) you can easily hit $100k.
I guess part of my thinking is that it's not even JUST the big decisions that a person makes, but ALL the decisions they make. You can come out ahead on any/all of them and the effects are cumulative.
Everyone has a sustainable comfort level. For most (single) people, that level is well above poverty, but well below a typical Silicon Valley programmer income. It's what you end up spending on ordinary monthly bills, food, and other routine needs and wants, including minor impulse purchases.
For me, when I lived in Santa Clara, this ran me about $2500, including medical premium and certain somewhat expensive tastes (and rarely cooking anything myself). It's where I typically ended up without thinking about it. (If I did watch myself a little more, I could pretty easily stay under $2000.)
I'm in a cheaper area now, but bought and partially renovated a decent sized house on half an acre in a semi-urban area, so the number has actually gone up a bit rather than down, but at the same time, some of the difference is effectively increasing my basis in a valuable asset.
If my income doubled, I'd get more work done on my house, but my routine expenses would otherwise remain largely unchanged. My savings would grow a lot faster. I would not have materially less money-related stress, because my needs are already more than met, not because my spending increased to compensate.
As someone who took a break from a good programming job to attend grad school (on a $20k/year stipend), I can say that for me the causality went poverty->stress. I've never had trouble with money management, but boy I sure sweated every little thing during those years. I was short with my wife and kids. I had sleepless nights. I had no idea how I would ever afford retirement or even health care. Now that I'm back to earning a good living my stress is way back down again. I feel my judgments are more considered, and I'm more confident in myself.
I don't think you can make that argument reasonably. Everything is a priority for everyone on the planet, always. Demand is infinite and supply is finite. The world's been like that for as long as people have been around. Monkeys exhibit behaviors that you could argue have to do with some kind of understanding of "fairness"
If you have free time to watch TV it's because you're choosing TV as a priority over the extra money that a second job would bring you. That second job would also put a dent in the amount of free time you have to watch TV and be sold a story that you need to buy things in order to be happy. That's all advertising does.
Are there people working two jobs and still perpetually living paycheck to paycheck? Absolutely. Hell there are people working 80 hours a week making over $100k a year living paycheck to paycheck.
It seems to me that "poverty" is a combination of where you start out in life and the trajectory that your decisions cause. What I mean is that someone who is born with a $10mm trust fund could easily whittle it down to nothing by the time they're 40 years old. And that a person who starts out with nothing, plus some malnutrition due to growing up in poverty can still get ahead if they make choices to consume less than they earn (no matter how little) and to invest their savings in things that can bring a return.
How does someone who makes only $20k per year manage to save money and invest it? I don't know the specifics to be honest. I'm having a hard time finding good investments myself and I make substantially more than that.
But I don't think it's right to say that people are 100%, unequivocally victims of circumstance and that once in poverty it's impossible to escape is correct. We as human being don't have any control over where we're born or who our parents are, but we do have some control over the choices we make.
Where are you going to make 'choices' to get ahead assuming all of your time and money are gone?
This is the cycle of poverty that unskilled people live under if you weren't born into a middle class family that can help you get ahead or if you don't get lucky.
So barring 'lucky opportunities' impossible is a pretty accurate way to describe poverty in America.
When I look at that I still see room to squeeze it cheaper. Rent could go down with a roommate (or several). A $200 car note is pretty substantial. $500 for food is also a lot more than needs to be spent.
I think that when you look at that, it's a bare-minimum kind of thing and it couldn't possibly get any cheaper.
What it boils down to is the will to make the sacrifices necessary to stop having to make all these short-term tactical decisions and be able to start taking a longer view.
Here's a lady who talks about having a $30/week food budget for her AND her husband.
I would also suggest that you don't attack me personally for my views and instead argue why they're wrong. When I disagreed with you I said "I don't think you can make that argument reasonably." When you disagreed with me you said "I'm not sure if you're trolling or just extremely naive and idealistic." You can do better.
If you're really that numb to people's suffering that you argue that it's possible to live on a 30$ weekly food budget because one wing nut posts a web page about it...
Well, it really does make me think you're trolling and that you've already make up your mind that 90% of the world is in poverty because they made poor decisions.
You could drink your own urine to save money on water bills as well....
That's 1.6 million hits. Obviously not all of them are about a precise $30/week food budget but plenty are. The idea that "one wing nut posts a web page about it" is blatantly false.
Did you even read the article? The lady espouses savings and thrift and the notion of building up a budget buffer so that when good deals come along that you can afford to take advantage of them. That means getting more than $30 worth of food per week while still only spending $30 on average.
Just because you can't imagine how it's possible to eat well on $30 per week doesn't mean it is impossible. It probably means that you've never had any reason at all to try and thus no idea about the feasibility. I can't say that I blame you for not trying; it's clearly a waste of your time. But it is doable.
I think this is exactly right. There's almost always somewhere you can cut - when I was a student I lived on $11k per year in today's dollars. $2000/month seems kind of luxurious.
And I didn't suffer any of the wrenching decision making overhead in the article. Decisions were easy - "Is there any way I can avoid buying this?" No? Then I bought it.
College students are like the Kevin Federline's of poverty.
They believe that because they lived frugally for a few years while seizing opportunities that a middle class existence opened for them they are now able to speak expertly on poverty and what being on the street is like.
And Kevin Federline made it up out of the streets with his dangerous thug dance moves.
>They believe that because they lived frugally for a few years while seizing opportunities that a middle class existence opened for them they are now able to speak expertly on poverty and what being on the street is like.
Based on this and your earlier comment I have serious doubts as to whether you've actually met someone who makes less than about $60k a year. You do ape your Contemporary Marxism professor passingly well, though.
Proving nothing. How do you know whether or not I can afford a Porsche? The ghettos are full of kids who know how much a high-end Lamborghini costs.
As it happens, I could afford to buy a Porsche if that was the sort of thing I wanted. Because in the decades since college I lived within my means and strove to make my skills more attractive to people who might want to hire me.
One thing I didn't do was fetishize poverty. All you have to do to be poor is refrain from doing anything. In the US nobody of average intelligence needs to be poor.
>Fox news and Rush Limbaugh will guide your moral compass.
I don't watch broadcast television or listen to commercial radio, so I'm not exactly sure what's on Fox or what Limbaugh is saying. But to the extent they support things like self-discipline, thrift, and hard work (you can find definitions for those words with Google) I agree with them.
I am sick of this whole notion that poor people cannot pull themselves up by their bootstraps. This notion that "poverty taxes the brain" is utter nonsense. Peoples brains are generally not taxed by being poor, their brains are lazy and their attitudes are bad, that is why they are poor to begin with.
I take personal interest and issue with comments surrounding this since I lived it. I have personally experienced, watched and read detailed stories of so many living in America who have done just this - Pulled themselves up out of poverty.
My personal experience (and those close to me as well) with having almost nothing was this: You have a lot less to worry about (literally). You don't own much, you have a lot of time to think and research how best you should improve your life. You have less distractions and it is easier to focus on your goals and ambitions. If you have a simple budget (takes hardly any time to make one when you are poor) you don't have to even think about "will I have enough money to make rent this month". This whole notion of poverty taxing the brain is yet another "excuse" for the poor disadvantaged soul living in poverty.
It comes down to this, if someone works hard and makes good choices (either on their own accord or by following wise advice), they are absolutely going to escape the poverty they may have been born into or ended up in by some circumstance.
Let me give you a little example of how things have changed in the last couple of hundred years. Do you think that early settlers brains were "taxed" so hard that they could not work hard? That they could not make good choices? They had to work hard just to eat, just to feed their families (if they had them). If they made one bad choice or made one mistake, they could have lost their herd or crop. This could mean their very lives. They may never have been able to escape barely surviving back then, but times are much different today. Take that level of work ethic and wise/conscientious decision making and put it into the average poverty stricken youth today and do you think would happen?
Your family's lack of money should mean almost nothing today, if anything - it should be extra motivation to work hard and improve you and your family's lives. Is there a reason that a minority youth in the worst and poorest inner city project cannot go to school, pay attention in class, do their homework and achieve at least a "C" average? Well with that average, they will be accepted to any state college. If they are poor, there is a ton of financial aid (free money) available. If necessary - get a student loan (this is your ticket out of poverty here, it is worth it). This is the escape out of the projects that almost everyone can do. It will not cost you a single penny of your own money until you finish college. Even then you can take an online film study (or similar) class at a local community college ($50) every semester and put off paying back your student loan almost indefinitely.
we see case after case of middle or upper class people lose everything and climb back up out of poverty, immigrant after immigrant (or refugee) come to America with nothing to their name and even not be fluent in English in many cases, yet climb out of poverty, minorities from the poorest and most violent inner-city projects climb out of poverty, yet I hear again and again how and why people cannot do it on their own. Well people do. What makes these people so special? Are they extra smart? Do they have more attractive faces and bodies? What is it that allows some to climb out of poverty where most cannot.
The limiting factor here is themselves - their attitude. This has been fostered by such things as the collapse of the family, the loss of strong morals and ethics, the nanny state (creating dependency and sending a message that they cannot do it on their own - creating victims), the entitlement attitude, the victim and disenfranchised mentality, racism (I mean minorities toward majorities here), class envy, the entire black culture in America today.
You would think that if the government really wanted to solve poverty, they would lookup everyone in the country who had escaped poverty, and interview them. How did you do it? How could others do this too? Then publish the results in a big ad campaign.
What would we find? A huge overlap of answers (which I already outlined). The problem is - the government is not really interested in eliminating poverty. Nor keeping people out of prison. The government (generally) is not the friend of the minority or the impoverished. The government does not wish to eliminate or diminish itself by enabling people to become independent of it.
Is it "fair" that someone is born with a silver spoon in their mouth and can move through life lazy and comfortable, while another is born in poverty and must work harder and have to make better choices to succeed? Of course it is not "fair", but it is reality and it is not changing. I can tell you a fact though that the individual who pulls themselves up by their bootstraps is a lot happier and more content person than the one born into wealth. Is that "fair" too? Happiness is something that can never be purchased (for any amount of money).
Mentally poverty can be an all consuming condition. I've come to think of it as comparable to programming in a high level language versus programming in a low level language. If you're financially stable you are like someone programming in a high level language who has tedious tasks like memory management taken care of for you. Whereas if you live in poverty before you can get to some of the really productive work you have some hurdles to overcome.
Another way of thinking of the difference between being financially stable and being poor is that if you are poor it is constantly a necessity to think about short term outcomes first so your mind gets clogged up with them. It is very difficult to get to think about your long term good because failing to properly address your short term outcomes could end in complete disaster. This is why I cannot take seriously comments like this on HN: https://news.ycombinator.com/item?id=6301856 although thankfully the commenter does acknowledge he is being cynical and disrespectful.