Plus, bee stings sometime make it hard to work.

I cringe every time someone says "the poor are no more lazy or stupid than anyone else." I get and agree with what they mean- that being poor doesn't make you inhuman, that we shouldn't make policy based on the idea that the poor are markedly different from those in power- but it hurts my inner data purist. Even if poverty was such a sick system that there was no escape, being middle class is not so secure- the lazy and stupid of the middle class will get more chance to right themselves than the lazy or stupid of the poor, but not an infinite number. Even people with serious inherited wealth can lose it in a cocaine habit. So if you define poverty by income quintile, the lowest quintile is going to have a disproportionate number of the stupid, the lazy, and those with poor impulse control. And since I don't believe that poverty is 100% sticky, I think that some people born to lowest-quintile parents will work themselves into other quintiles, at which point they no longer count as "poor." The point of my long series of posts is examining how to set up a system so that transition happens more often, at which point the link between bad behavior and poverty will become even stronger.

Just to be clear: I am not claiming that negative traits affect the poor and non-poor equally. The more money you have, the more insulation you have from your poor choices, and from random bad luck. This isn't a claim that life is fair, just that life is not completely random.

I think this is a weakness of discussing "the poor" instead of "people who earn little to no money." Clearly, we can agree on a definition of stupid (or lazy, or poor impulse control) such that it leads to earning less money, and which point it's tautological that the stupid will be overrepresented among the poor. But because we've set income markers up as tribal identities rather than descriptors of income, this feels like an attack on the tribe.

And then there's the issue of defining stupid/lazy/poor impulse control. I'm going to take lazy for my example because it's the easiest, but first I have to define some economics terms:

Income effect: When people earn less per hour (due to change in wages, or income tax), they work more, to make up the difference

Substitution effect: When people earn less per hour, they work less (i.e purchase and consume more leisure time), because work is less rewarding.

This is why it's basically impossible to predict the effect on work hours of an income tax change: we have no way to predict which effect will dominate.

Bee Sting theory: a description of nonlinear returns to money. Imagine you have n bee stings, and the opportunity to buy enough ointment to permanently cure one sting for m dollars. Your first m-1 dollars buy you no happiness at all. The mth dollar doesn't do much either, because you still have n-1 bee stings. But the money to buy the last dollop of ointment brings you incredible joy, because now you are pain free. In the real world, this translates to things like "reaching just enough money to move to a safer neighborhood" or "buying a car so you're not dependent on crappy public transit". If that goal is a long way off, and it's likely something else will claim the money in the mean time (=you'll get more bee stings), why even bother? In the expanded version of this metaphor, we introduce alcohol. Alcohol does not cure bee stings, but it provides substantial relief for one day. Clearly the homo economicus choice is to buy ointment and eschew alcohol, but here in the real world, if you have a lot of bee stings and can't afford to buy enough ointment for all of them, purchasing alcohol is the rational short term choice. And the more real world you make this, by introducing things like the chance of randomly losing your savings, the better the case for alcohol. But then you're stuck buying alcohol every day because your bee stings never get better.

Continuing with an attempt to define laziness: Wealthy people work more hours than poor people You could argue that this is tautological, that of course people who work more earn more, but that has not been true for most of human history. It appears that people who earn more *per hour* also work more hours. In this economy that doesn't prove anything about anyone's inclination to work, but the data is older than that, including periods where jobs really were there for the taking. This suggests to me that the substitution effect is dominating, and I suspect the bee sting effect is the reason for that. If you're not going to make enough money to buy ointment (a safe apartment, a car, better schools for your kids, a trip to the decent grocery store), you might as well consume that money in alcohol (leisure).

But wait, it gets worse. Remember I mentioned introducing the random chance of losing your money? Even if that chance was randomly distributed among income levels, which it's not, it will disproportionately effect those who earn less money per day, since their money is sitting around for longer before being used to buy ointment. And if we want to be really unfair/realistic, we can introduce the idea that bee stings reduce your earning potential.

Coming at this from another angle: I think most people on welfare would trade earning situation for mine. My job pays well, has flexible hours, and I'm treated with respect. Quotes in American Dreams indicate they would in fact be thrilled to trade welfare for jobs substantially less awesome than mine. Alas, these jobs are still substantially more awesome than what you can realistically get with a high school education and minimal experience. You have to endure a lot of crap before you can work up to a job that's actually better than welfare (this is made worse by the way we handle benefits, but would be true even without that). So I don't deserve any not-lazy merit badges for picking my job over welfare. I like to think that if I was magically transformed into someone who needed to start at the bottom, I would work my way up, but even that is dependent on me growing up in a world where hard work was reliably rewarded.

So in summary, there are 3 different things you can define as laziness:

1. true genetic not wanting to try hard
   
2. being in a situation where trying hard will not benefit you, relative to the alternatives
   
3. Being in a situation where trying hard would benefit you, but that resembles a lot of other situations where trying hard did not benefit you, and so you rationally believe trying hard will not benefit you
   

With bonus 4th option: trying hard and having it fail anyway. We can't do anything about #1 and I'm not sure why we should bother, but what do we do about 2-4? For once, I actually have an idea.

Complete solution? No. Marginal improvement? Yes.

So the first step of getting off public assistance is the hardest. First, there's the morally reprehensible implicit marginal tax rate, which I hope we're all on board with ending. But there's also the fact that jobs available aren't very good. We can argue that people should suck it up and do them anyway, and maybe that's true, but in the mean time I'd like to work on a plan that doesn't require suspending human nature.

I'm going to use that "respecting human nature" constraint as a reason to ignore improving the entry level jobs entirely. I have a few ideas for marginal improvements, but nothing amazing. But I think we could do amazing things with entrepreneurship. Starting your own business solves a lot of the problems inherit in entry level jobs: you control your own hours, you're not being bossed around by an idiot, corporate isn't making rules to destroy your life with no pay off. It replaces these with different problems, but for some reason people mind them less from customers.

The poor, at least the urban poor, are already fantastically entrepreneurial, according to Off the Books: the Underground Economy of the Urban Poor. There's a lot of informal restaurants, beauty salons, and taxi companies. The problem is that while it's much easier to start and run a business in the legal gray zone, there's a fairly low ceiling on how much money you can make there. To grow, you need to be legal. But there arehuge transition costs to making your business formal. Specifically:

• Taxes. Transitioning from unlegal to legal requires paying taxes on all (or at least most) of the income you're currently earning. It may be a while until you earn enough additional income to make up for that. Bonus unfairness: the more sophisticated you are, and the better legal advice you can afford, the lower your taxes.
  
• Paperwork. There is a ton of paperwork that has huge consequences if you screw it up and no guidance as to how to avoid doing so.
  
• Legal entanglement: the line between unlicensed but otherwise legal businesses and the strictly illegal is not particularly bold. Shopkeepers rent out space to gangs for illegal poker gangs, lots of people store drugs or guns in their apartment for a few days. This makes it harder to invoke legal protection should something bad happen to you.
  
• Licensing: in order to legally charge for braiding black hair in Washington state, you must complete 1000 course hours (or maybe 1600, if it comes under cosmetology) in techniques and chemicals developed 50 years ago for use on European hair. For some reason people seem to view this as a waste of their time.
  
• Banking: if your business is informal, it's hard to prove to a bank that they should loan you money to expand your business, since from their point of view your current business doesn't exist. This is made worse by the fact that poor people tend towards check cashers and payday loans rather than banks and credit cards.
  

If we reduced these barriers, people could more easily start businesses in or transition their businesses to the legal white zone. That means more money for them, and potentially more jobs for other people. So how do we do that?

I was already in favor of getting rid of the corporate income tax. The long form of the argument can be found here, but the short version is: you can't tax corporations because they don't exist. You can only tax the owners, employees, customers, or suppliers, and if we want to do that, we might as well do it directly. But this is an additional good reason to do so: it lowers the barrier to starting a new business , and lessens the advantage currently given to big corporations with lots of lawyers.

There's a lot of paperwork we could just eliminate outright. For example, Pittsburgh charges you $100/2 years for the right to have a business, regardless of whether you are actually making any money. That's clearly counterproductive. Some things are more gray area, but I bet there's a lot of low hanging fruit here.

The legal entanglement is hard to fix. Legalizing drugs would help, in the sense that it would put the current dealers out of business, but may not fix the entire problem. I'd love a less antagonistic police force, but I promised to work within the bounds of human nature. So mostly I'm hoping to fix the others enough that this will no longer be a substantial barrier.

Licensing: the government needs to stop allowing itself to be used as enforcers for cartels of existing business owners. They claim the business associations are there for consumer protection, but they are clearly lying.

Banking: This one is tricky. Part of the problem will be fixed by making it cheaper to declare your income, thus proving to banks that your business actually exists. I'd be in favor of making banking more straightforward to make it more accessible, but I have no faith in the ability of the government to do that via regulation, or in its ability to run a banking service. Seems like this is an area where a non-profit could do a lot of good.

Negative Income Tax

Doh. I can't believe I got this far in anti-poverty measures without trumpeting the negative income tax. The NIT is exactly what it sounds like: above earnings of $N, you pay taxes per normal. Below $N, you receive a bonus proportional to how much you earned. People who earn less receive a larger bonus proportional to their earnings, but the system is calibrated such that you are never punished for earning more. It's similar to the EITC, but more finally tuned, and unlike most forms of public assistance I have no problem with it being given to healthy childless adults, because I think the benefits are worth the relatively small cost. The NIT doesn't have to be exclusive to other forms of aid to the poor, but I think it a perfect world it would be the dominant if not only form. You can also make additional adjustments like making the refund percentage a function of the number of dependents/of.

So here's what this accomplishes:

• Yay incentives to work. I can't find it now, but I've written before on how the minimum wage is bad, and if we want people to be paid more for work, we should just do it. I also think this would improve marginal workers treatment at the hands of employers, because if the employer is paying less in cash the worker can extract more in non-financial benefits.
  
• Yay incentives to declare income. For one, this will help with opening a business/getting credit/getting housing/getting transportation. For two, while I more or less view taxes as a necessary evil, tax cheats make my blood boil, in part because I think my taxes are way too high and pay for a bunch of things I don't like and yet I pay them anyway. But it's human nature to not declare the income if you can get away with it, especially when you're living that close to the edge. So if we can fix the system to reward people for the right behavior, that's awesome. Admittedly, it creates a new incentive to cheat by inflating your income, but I think that cost is outweighed by the other benefits.
  
• It destroys the penalty for moving from informal to formal work (up to $N), reducing the likelihood people get stuck in the informal zone.
  
• It gives everyone a piece of ownership in the country. Technically everyone pays income tax because the idea that payroll taxes are earmarked for Social Security/Medicare, but somehow this hasn't translated well. If NIT was combined with PAYGO, you would know that voting for a new program would cost you money, regardless of your income level, and I think that's good.
  

Disadvantages:

• This doesn't handle people can't work. This isn't so much a cost as an acknowledgment that if we want to take care of them, we'll need a different program.
  
• In order to maintain a reasonable marginal tax rate, you either have to set $N very very high, probably higher than I'd be willing to do, or have the extremely low earners suffer from insufficient funds. You could fix this with a separate block grant, but that weakens the incentive to work (although not as much as the current system, so it's still a Pareto improvement).