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Are You Trapped in the Tunnel of Scarcity?

By Shlomo Maital

   Are you trapped in the tunnel of scarcity?   If you are, you may not be aware of it.

   In his wonderful National Public Radio podcast “Hidden Brain”, Shankar Vedantam discusses the “tunnel of scarcity” – a situation in which we invest so much mental energy in one thing, there is too little left for other essential things (family, rest, relaxation).

   Princeton University Professor Eldar Shafir and colleagues showed in 2013 and 2014 (in Science journal) how being poor affects negatively our cognitive functioning. [1]   If you are poor, you focus on your immediate needs, with little thought or energy left to plan for the long run. Ability to defer gratification, to acquire human and financial capital, is thus impaired. They find:

   A person’s cognitive function is diminished by the constant and all-consuming effort of coping   with the immediate effects of having little money, such as scrounging to pay bills and cut costs. Thusly, a person is left with fewer “mental resources” to focus on complicated, indirectly related matters such as education, job training and even managing their time.

   Vedantam expands on this phenomenon, and describes the “tunnel of scarcity”. If there is something that you feel you need very badly, your brain focuses on it exclusively, and crowds out other things that may be important. He interviews a former medical resident, who focused obsessively on excelling in her residency, and burned out.

   I co-host a course on Entrepreneurship at my university. I invited a former very senior Intel executive to share his life lessons, in a life filled with innovation. He began his “10 Lessons” with Lesson #1 – Family, and described the heavy toll that high-tech can take. He cautioned students to be aware of it, lest it consume their family life.  

   In evolution, 25,000 years ago, humans who entered the tunnel of scarcity and focused single-mindedly on immediate needs – food, water, shelter – tended to survive, and reproduce, more than those lacking it. So evolution has equipped our brains with “tunnel of scarcity” capability.

   But in modern life, unless we are keenly aware and mindful of it, and if our friends and family fail to alert us to it, we can all of us fall victim to entering a tunnel of obsessive focus – and destroy without intention things of value. And when we awake to the situation, it may be too late. A brain trapped inside the tunnel may struggle to escape.

     Are you in such a tunnel? Is there sufficient light at the end of it, to guide you out of it?

. . . .

p.s. In 1972/3, 45 years ago, my wife Sharone, a psychologist, and I submitted an article to the American Economic Review. In it we argued that because the poor are not proficient at deferring gratification, to build future income, poverty tends to be transmitted from generation to generation. The editor of the journal rejected our submission out of hand, quipping glibly that “in fact the poor are expert at deferred gratification – they do it every day”. Eventually we did publish the article. But it has taken decades for psychology to invade, and perhaps even capture, mainstream economics.

   Sharone Maital and Shlomo Maital, “Time preference, delay of gratification and the intergenerational transmission of economic inequality”. In Orley Ashenfelter and Wallace Oates, editors, Essays in Labor Market Analysis, (Halsted Press/John Wiley & Sons, New York: 1978, 179-199).

 

[1] “Poverty Impedes Cognitive Function” Anandi Mani, Sendhil Mullainathan, Eldar Shafir, Jiaying Zhao. 30 Science   AUGUST 2013.

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Rescue Dogs – Rescue Children
By Shlomo Maital 

Seven years ago, our daughter in law came upon a puppy in Tel Aviv. A mixed-breed Yorkshire,  the four-month-old puppy jumped on her, on a Tel Aviv Street.  Dafna could find no owner, and brought her home, bathed her, cleaned her up (she was full of fleas and ticks), took her to the vet for shots…and asked us if we could help find her a home, as a rescue dog.   I met Pixie (the name we gave her) when I came home from a working trip to Europe.  As I came in the door, she jumped into my arms and licked my face… instant love, after 3 microseconds.  At that instant, my wife and I decided we would keep her.  Since then Pixie has made us laugh every single morning and with her antics, made the awful news in the New York Times and Ha’aretz bearable.   
     Pixie IS a rescue dog.  She rescued us, in a sense.  She takes us for walks and offers unconditional love, rain or shine – and an incredible greeting every time we come home, as if we were long-lost siblings.
    Several of our friends have rescue dogs, too.   One has a beautiful placid huge golden retriever, female,  she (the dog) carries herself with dignity worthy of Pope Francis.    Taking home a rescue dog is truly worthwhile and meaningful —  often, it keeps the dog from being put down, in rescue kennels that are vastly overcrowded, because so many unworthy people bring home puppies for children and then suddenly discover dogs need care, feeding and walking ..and abandon them. 
     So yes – great that we love rescue dogs.
     But what about rescue kids?  Writing in The New York Times, Nicholas Kristof points out that America is neglecting kids – and not just those of immigrants. 
“It’s not just the kids at the border.  America systematically shortchanges tens of millions of children, including homegrown kids. The upshot is that American kids are more likely to be poor, to drop out of high school and even to die young than in other advanced countries.”
    So —  What about a program for rescue kids?   Resources for education, food. (Republicans now seek to cut a food stamp program that has fed millions – including one child in five who lives in poverty in America,  a Third World statistic).   Even, perhaps, adoption, when justified. 
   Kids are as lovable as dogs. And they deserve just as much love.

p.s. this is blog # 1,500.  Thanks to all my readers. 

Ashley vs. Ivanka: Choose Your Role Model

By Shlomo Maital

  biden

Ashley Biden & Father Joe

   President Trump recently tweeted his recommendation, that people buy his daughter Ivanka’s upscale fashion designs, after retail chain Nordstrom took her clothes off its shelves. (“They don’t sell,” Nordstrom claimed).

   Another famous politician has a designer-daughter – former Vice President Joe Biden and his social worker daughter Ashley.   Her story, and product, are a bit different.

   According to Elle Magazine: “Ashley’s new ethically produced, American-made clothing company, is a project any dad would be proud to get behind. It kicks off with a range of supersoft organic cotton hoodies on sale for just a few weeks, starting February 8, in partnership with the flash-sale behemoth Gilt: The entirety of the proceeds from the debut collection will be channeled to programs that work to alleviate poverty through education, training, and job placement.

     “Ashley, 35, who is also the executive director of the Delaware Center for Justice, a nonprofit that serves children and adults impacted by the criminal justice system, had toyed with the potential nature and mission of Livelihood for years. One thing that never wavered was the idea of the hoodie. This is partly because Ashley herself—who has a stealth charisma and a fondness for phrases like “heavens to Betsy”—describes herself as a “jeans-and-T-shirt kinda gal.” It’s also because she appreciates the symbolism of an item long connected to American laborers and more recently to Black Lives Matter. “Livelihood is specifically about income inequality,” she says. “And racial inequality and income inequality are directly related.”

     “By the time her parents moved into the VP’s mansion in 2009, Ashley—who did her undergrad at Tulane, then earned a master’s in social work from the University of Pennsylvania—had a job serving kids in the foster-care system. It was disorienting, to put it mildly, to travel from a juvenile detention center to, say, Air Force 2. What did become increasingly clear was how little privileged Americans understood about life below the poverty line, where 13.5 percent of the U.S. resides. “I’d hear about five siblings sharing one burger,” she says. “How does a kid do homework when there’s no desk or lamp? One of the biggest things I’ve seen in my work is that a lot of social ills directly result from poverty.”

   Does it take a privileged daughter of the U.S. Vice-President, to explain to us how little we the privileged understand about the life and hardships of the one in seven who live in poverty? And will we opt for the role model of Ivanka Trump, who sells to the wealthy, or Ashley Biden, who works for the poor, and has done so for her whole career?

Meltdown 2015 – 7 Reasons It May Happen

By Shlomo   Maital

meltdown

 IMD (a leading European business school based in Lausanne, Switzerland) Professor Arturo Bris offers eight reasons why a financial and economic meltdown in 2015 is likely.  He may be wrong – but we should all be aware of the underlying danger signals.  Forewarned is forearmed, or, as the Boy Scouts say,  “be prepared”.

  • Stock market bubble: equities rose 18 percent between June 2013 and June 2014.  Bob Shiller (Yale) says the gap between stock prices and corporate earnings is larger than it was in the crisis periods of 2000 and 2007. Why the bubble? Because there is just so much money, those who hold it are desperate to put it SOMEwhere… no matter what.
  • Chinese banking system:   Need more be said?
  • Energy crisis:   If the US Congress allows energy exports, it could crash the price for oil, and sink Russia and other oil-reliant countries. This could lead to violence.
  • New real estate bubble:   The housing bubble is back – low interest rates, rising real estate prices in many markets.
  • Corporate failures:   Corporate debt is now rated, on average, BBB. This means that in the next 5 years about 16 companies in the S&P 500 will go bankrupt. This could have major impact.
  • Geopolitical crisis: The world is a huge mess, with civil wars raging in the Mideast and elsewhere.
  • Poverty crisis: The number of people in the world living in abject poverty grows.   This is dangerous; because desperate people may do desperate things.
  • Cash crisis: There is simply too much money out there. Central banks have printed enormous amounts of cash, and it is floating around the world. Some banks and some companies are so rich they could buy entire companies (anyone want to buy Israel? Jamaica?).   Right now that money is just sitting. If it starts to move, if its velocity rises, we may get huge problems.
  • It is possible to prevent a meltdown, if a) politicians are aware it could happen, and b) begin taking action NOW.   But both a) and b) are highly unlikely. We the people should therefore try to be aware of the meltdown danger, and begin taking our own steps to protect our families our incomes and our assets

Bolsa Familia: Welfare Payments That Work

By Shlomo  Maital   

           Bolsa Familiar 1

                        Bolsa Familiar graph                         

  As the super-rich and powerful of the world gather at Davos, Switzerland, the amount of hypocrisy spoken there about battling poverty could sink a mid-sized country.  The super-rich wring their hands…and the next moment, use both of them to grasp more and more assets. 

   Right under our noses is one possible solution.  Theory doesn’t help.  We need to see what works.  Check out Brazil.   “Bolsa Família (formerly Bolsa Escola) started in the 1990s and expanded rapidly in 2001 and 2002. It provides monthly cash payments to poor households if their school-aged children (between the ages of 6 and 15) are enrolled in school, and if their younger children (under age 6) have received vaccinations.”  In other words – attach the welfare conditionally to actions that will help get the NEXT generation out of poverty, through good health and good education and schooling.

   The result?   Look at the graph above.  Since Bolsa Famliar was introduced rural poverty declined steeply, and urban poverty declined impressively,  where poverty is measured as living on under $1.25 daily.    There is still severe poverty in Brazil – but Bolsa Familiar is helping to battle it. 

  The basic idea is so simple.  To survive, poor families have to send kids out to work sometime.   Offer them help – but condition it on sending the kids to school.  Now, if the super-rich at Davos could take a moment from the ski slopes and fancy restaurants, perhaps they might consider investing some of the trillions they have in a large-scale pilot project, for very poor countries, along the lines of Bolsa Familia.  That might diminish slightly the cynical hypocritical atmosphere that is so evident. 

   

 Raise the Minimum Wage — Now!

By Shlomo  Maital

         Mcdonalds workers

   America and Israel both have a chronic poverty problem.  President Obama now speaks of “a relentlessly growing deficit of opportunity” in the U.S.   In Israel, three end-of-year poverty reports reveal a bitter picture of hungry children, a fifth of the population under the poverty line and persisting lack of mobility across income classes.    Most distressing is the working poor.  Many of those in poverty, in America and in Israel, are hard-working, with jobs. But they still can’t make a living, because they are not paid living wages.

   A simple solution?  Raise the minimum wage.   Economist disagree on this.  Some studies show it would hurt employment and actually hurt the working poor. Some studies show it would help.  And of course, you can use econometrics and statistics to show anything you wish.

   Two Princeton Univ. researchers, Alan B. Krueger and David Card,  found a ‘natural experiment’ that helped resolve this issue.  Some 20 years ago, notes Annie Lowrey in her New York Times column, during the 1990/1 recession,  New Jersey raised its minimum wage to $5.05 an hour, from $4.25, while neighboring Pennsylvania chose not to.  Card and Krueger surveyed fast-food restaurants along the NJ-Penn. Border and surveyed them twice, during 11 months, to see how many they employed.  Economic theory says, when labor gets more expensive, you buy less.  But to their surprise, there was no change in employment in the N.J. restaurants, relative to the Pennsylvania ones.  Low-wage work went up in price, but demand for it stayed the same.  McDonalds workers today earn $7.25 an hour, the federal minimum.  Their real wage has gone down since 1992. 

    Despite this study, economists still disagree.  A survey shows that a third of economists thinks raising the minimum wage to $9/hr. would make it harder for low-skilled workers to get a job, a third thinks it wouldn’t, and a quarter don’t have a clue.  So – forget the economists. Do the right thing.  Listen to Card and Krueger.  Raise the minimum wage to $10.  It’s the right thing to do.   

  For the 9 months ending Sept. 30/2013, McDonalds had $21 b. in worldwide revenue,  $6.6 b. in operating profit and $4.2 b. in net income.  Yes, that’s a 20% net margin!   They can afford a small rise in the minimum wage.   And don’t let them tell you they will fire any workers as a result. 

* D. Card, A. B. Krueger, “Minimum wages and employment: a case study of the fast food industry in NJ and Pennsylvania”,  NBER working paper, no. 4509, Oct. 1993.

America’s DEEP Poverty: The REAL Scandal!

By Shlomo Maital

         deep poverty                  

Deep Poverty

    All eyes, all attention, all media  are focused on America’s government shutdown and debt ceiling crisis, now coming to a head.  This is indeed a scandal – no way to run a country, as the Economist cover claims. 

   But as usual, the real scandal is elsewhere, and is largely ignored by all, including the squabbling Washington politicians.

   According to the Wall Street Journal Europe (Friday Oct. 11-13, p. 7),  “Extremely Poor Fall Further Behind”,    despite the so-called economic recovery,  44 per cent of Americans who live below the poverty line  are in “deep poverty” (i.e. they have income that is half or less that of the official ‘poverty line’, which itself is exceptionally low.     Some 20.4 million Americans live at this level of income!   One American in every 16 lives in deep poverty.  This is up from one American in about 30, in 1975. 

     Some 45 m. Americans live in poverty, defined as an income of $23,492 for a family of four.  So deep poverty is an annual income of $11,750, or about $240 a week.   Some of the biggest increases in deep poverty occurred in the Deep South – Mississippi, Indiana, Georgia, Alabama. 

   Many of the ‘deep poor’ have part-time jobs in retailing, and struggle to get enough hours to get by, because their jobs are for 20 hours a week or fewer. 

     I wonder how many of us could survive in the U.S. on $240 a week, to pay for food, shelter, clothing, education,  and of course paying for health insurance at that income level is out of the question. 

    So while partisan Washington squabble over politics, the deep poor sink deeper and deeper into despair.    What really could help the deep poor?  Sustained economic growth.  Only that can create the jobs they need, and convert part-time jobs into full-time ones.  But we won’t get sustained economic growth, while U.S. government spending is being slashed, because right now the government is the main, even only, source of growth in demand.  And of course the deep poor have no voice – they are silent, unorganized, with no-one to stand up and speak for them.

     Those of us who are comfortable should try to speak up for those who have so little.  But I just don’t know how to do this effectively.  Do you?    
http://online.wsj.com/article/SB10001424052702304520704579127683358228854.html

Blog entries written by Prof. Shlomo Maital

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