You chose to conduct a comprehensive study of poverty. That’s not a very popular subject in your area of expertise – decision-making.
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That’s true: It’s not sexy, it’s not profitable, it’s depressing.
Then why did you decide to get involved in it?
I met a young Indian economist, Sendhil, with whom I wrote the book. He’s an expert in the economy of developing countries. We decided to try to create a study together of a subject that had not yet been researched: decision-making in conditions of poverty. There are two schools of thought about poverty. The rational school says that the poor are like everyone: They look at the givens, analyze the situation and decide. The second school perceives poverty as a pathology: a lack of motivation, a lack of values, a lack of self-control. We thought there is a third option – namely, that the poor are like everyone else, in that they are not entirely rational, and are confused and tend to make mistakes, but that in their situation, it costs one much more.
Hence the principal, perhaps revolutionary, thesis of your book: The poor are not to blame for their condition.
Yes. From what we have seen so far, people’s basic abilities are identical. It’s not that a person’s basic abilities lead him into a situation of poverty, but that the conditions of poverty themselves bring about [his] poor performance.
Tell me about the experiment you conducted in a New Jersey mall, to examine decision-making under conditions of economic pressure.
We recruited volunteers in the mall and proposed two hypothetical economic scenarios to them. One was that their car broke down and the repair job would cost $150; the second, more worrisome one, was that the repair job would cost $1,500. We asked them to think about how they would cope with this situation, then sat them down in front of a computer and asked them to solve some classic cognitive puzzles, which examine attention and other functions. After they finished the game, we asked them for a declaration of their income and on that basis we divided them into two groups: rich and poor.
What did your analysis show?
In the $150 scenario, the poor function just like the rich: Both groups appear to be equally smart. But when the cost jumps 10-fold, a very large disparity emerges between the rich and the poor. For the rich, the thought of having to pay $1,500 is not especially upsetting. But for those with a low income, it’s a significant amount of money. It made them think about the privation they experience in their lives ... and their cognitive performances on the test were not as good. Far from it. The falloff in the results was approximately equivalent to their losing 13-14 IQ points.
But is it surprising that people in economic distress have reduced cognitive abilities?
It’s surprising how significant it is. Thinking about scarcity demands a vast amount of attentiveness and cognitive ability. In qualitative measures, 13 IQ points [either way] can take you in the direction of borderline intelligence, or to being gifted. It’s a dramatic difference. The scarcity is so stressful, so disturbing that you have no control over it and are unable to say, “I’ll think about this later.” It bugs you all the time. We ran this experiment several times, and the outcomes were identical. We also tried a version in which we paid the subjects for each correct answer in the test, so that low-income people would have an incentive to do well – they need the money – but the incentive made no difference. When we presented an economically stressful scenario, involving [expenditure of] a large and significant amount of money, we saw a decline in performance by the poor.
When you talk about cognitive ability or cognitive capacity, one of the components you refer to is fluid intelligence. Let’s consider that term for a moment.
A large part of what’s in our memory is devoted to knowledge – [like knowing] what the capital of France is, for example – and there’s a small part devoted to real-time thinking. At a given moment, you have to think, consider things and retain them in the short-term memory. Fluid intelligence is the ability to control that small area, and it can be quite limited. If I asked you, for example, to keep a telephone number in your short-term memory, you would do other things a lot less well while you held that number in your head.
So it’s like a computer processor, which distributes resources among a number of tasks.
Exactly. When you take a group of people and tell some of them to remember a two-digit number and others to remember a seven-digit number, those who have to remember the longer number perform other tasks far less well. Now, consider the fact that the “poor people” we checked are not abjectly poor – after all, they’ve come to a mall, and most of them arrived in their own car. They are just people who find it hard to lay out $1,500 immediately. But still, they performance on the cognitive test declined because of the hypothetical economic pressure they felt.
That’s very disturbing, because poverty is spreading, meaning that much of humanity is caught in a vicious circle of low-level functioning and bad decision-making.
Yes, it’s a message that can be depressing. But I believe that the alternative is far more depressing. The alternative is to believe that the poor are simply less successful. However, my colleagues and I think that everyone possesses the same potential to succeed, and the question is how we try to create a situation or a system that will reduce their preoccupation with scarcity and grant them greater mental power to address issues.
In other words, how to modify the structure of social welfare services to respond to this need.
These people lack two things: money and cognitive capabilities. We know how to give them money, but we’ve never considered how it’s possible to enhance their mental ability. The endless preoccupation with what’s possible and what’s not, how much it will cost me and what I will do tomorrow is extremely taxing. Thinking in a situation of privation greatly reduces the mental “bandwidth,” and that needs to be taken into account when planning how to help the poor. For example, in the United States, there are people who are eligible for financial aid to go to college ... But only about 30 percent of those eligible actually take the money.
That’s exactly the question. Why don’t more people take it? Going to college is important. Your lifelong earning ability changes drastically because of it. The answer is: You have to fill out [financial aid] forms. Sixteen long, complicated pages of poorly formulated questions. People take the forms, but in the morning their baby is crying and in the evening their mother is sick, the car broke down, and a check bounced and they have to work another shift - and life goes by.
Could the problem be that there is just too much bureaucracy? That coping is just too complex for people engaged in survival?
Life is complex, there are many things that demand our attention and we just can’t handle everything in a completely responsible way. It’s easier for those with money. I don’t have to calculate my tax return alone – I have an accountant who calls to remind me about it and also fills out the forms for me. If my children are sick, I have a nanny. Paradoxically, those whose lives are more complicated don’t have all this help. No one reminds them, no one helps them – on the contrary, people take advantage of them. They get a mortgage with particularly poor terms, the bank is out to squeeze them. It’s all backward.
Does society forsake the poor?
Unquestionably. I don’t know whether it’s due to evil or lack of attentiveness or lack of understanding. There’s certainly no little evil at play here, but I tend to think that much of the problem is a kind of incompetence ... If you give someone who needs help a 16-page form, it means that a lawyer and an economist and some other expert sat down and thought about it, and in the end, and not on purpose, simply created a barrier.
There’s a disconnect between decision makers and the lives of most people. When Yair Lapid became Israel’s finance minister, he decided to cut child allowances. For the well-off, it’s not a meaningful amount, but for the poor, it’s dramatic. People were furious. “You are taking the food out of children’s mouths,” they told Lapid.
It’s the same here. The Republicans are demanding that President Obama cut benefits for the poor. They refuse to pay 1 percent more in taxes and would rather have benefits to the poor slashed. Of course, there are various political power-related issues involved here, but let’s ask: Why is Lapid doing what he’s doing? Let’s say, he is not a bad person. I see it as a kind of assumption about the poor, a way of perceiving their problem as being due to lack of character or a lack of desire, [and the feeling] that they should pamper themselves less and try harder, show greater motivation. I think this shows a very deep lack of empathy.
Can the affluent understand the life of the poor? When Lapid says, “We have to exchange the culture of allowances for a culture of work,” does he even understand what he is saying?
No. But let’s say Lapid were to close his eyes and try to imagine how he would function if he were deprived of two hours every day. He might grasp that it really is a serious problem. Being busy and being poor are cognitively similar ... Naturally, if I am busy and forgot something, or didn’t show up, or didn’t send something, nothing happens. But when you’re poor, it’s completely different. When you don’t have money, you are suddenly evicted from your apartment, your children don’t have food to eat. If Yair Lapid did that exercise, he might perhaps understand what it means to function in harder conditions, but he would still not know the fear or the price that has to be paid for failure.
Did you not advise Obama in this area?
I was a member of the President’s Advisory Council on Financial Capability. It’s a group of about a dozen people. Sometimes we met in the Oval Office, and he would join us. We submitted recommendations about how to behave within the context of poverty, how to deal with the banks and with money - that’s a subject that came up repeatedly in these reports. I think Obama cares, that he listened, that it truly interests him.
Again, it’s a matter of trying to understand how it works from the inside.
There’s a company here that gives “poverty training” workshops. You are given a form asking you to state your age, how many children you have and what your income and conditions are, and using those data you have to cope with specific situations. It’s a far from perfect simulation, but it generates powerful moments. I remember one woman, especially, very high-ranking and very sophisticated, who came out of the simulation stunned. She said she never would have imagined that she would leave her sick daughter home alone, but in the theoretical situation she was given, she was at home by herself with a sick daughter, and the social welfare office was closing in an hour and she had to pay the rent, so she left the girl and rushed to the office.
She was just stunned at herself. She saw how you suddenly arrive at a situation in which you do something you would never have thought of doing a minute before. And then it didn’t look so crazy to her - it looked logical. I don’t understand that world completely, of course, but when you enter it you start to pick up subtleties, not to exhibit profound empathy per se but a basic understanding of things that from the outside might look quite exotic.
An understanding that much of what we ascribe to ourselves as good character traits, or abilities to cope with things, is due to the privileges we possess.
We have several identities. I am a Jew, an Israeli, a professor and a father, and when one of those traits takes control, you become a different person. When you are a soldier in battle, you do things that afterward, in your living room, seem like things that you could never have done ... It’s the context that generates the behavior, and that is very difficult to grasp.
Does economic vulnerability fall under the poverty rubric? There was a report in Israel not long ago in which 70 percent of the country’s normative families stated that they would not be able to cope with a one-time outlay of 8,000 shekels (about $2,300).
Also here, too: According to a 2011 study, around 50 percent of Americans reported that they would not be able to come up with $2,000 within 30 days, even if they absolutely had to. All the data show that inequality is growing. The money is going to an ever-diminishing number of households, so you have a small number of wealthy people and masses of people who are stressed.
So much for the trickle-down theory.
Absolutely. I was at a conference about inequality recently, and the tables presented there show that Israel and America are lowest on the scale – they have the least equality.What would you like to see happen in the wake of your research and book?
I hope for a bridge of empathy, for people to understand that the poor have no money and no bandwidth. That would change the approach completely. When we think of making decisions, we think about cost benefit, and that inherently takes into account that you have bandwidth. If I have no time and I have no head for it and I have a million things to do, I don’t factor in cost benefit. If we are able to influence empathy and modify the notion that someone who looks dumb and makes dumb decisions might simply be worried, preoccupied and busy – that will be a tremendous success.
Have the conclusions you reached in the book made you more optimistic or more despairing?
I think that people are f----- up anyway. But I am happy to discover that there really is no difference between people. I mean, I have already got used to the fact that we are not especially impressive animals, but the thought that we are all alike is comforting. It’s not that there are more successful and less successful people. We are all in the same s---. The poor don’t have fewer abilities than others, they just have less luck. As a modern society, it’s a huge shame that this is the face of poverty in both Israel and the United States. The truth is that there is no scarcity, there is a vast surplus. The fact that as a society we have not attained a situation in which fewer people have it bad, is disgraceful. We send astronauts to the moon, but can’t feed people.