"Why do the poor stay poor and the rich get richer?"

Ask your investment, budget, and other money related questions here
TopHatFox
Posts: 2093
Joined: Thu Oct 17, 2013 10:07 pm
Location: FL; 25

"Why do the poor stay poor and the rich get richer?"

Post by TopHatFox »

Have at it. (Feel free to disagree, agree, etc. with the inherent assumptions in the question).

-------------------------

I ask because I tend to emphasize individuals' agency as more important to achieve general success and well-being than the system in which they live, and most people in my college tend to emphasize the system in which individuals live as more important than their agency. I imagine the answer is somewhere in between. Interestingly enough, it's ironic that most of the complainypants comments in mainstream MMM or ERE snippets are "the system is this, this, and this, and it's so hard" and "this specific person had this, this, and this, and that made it easy." It seems that both systematic and individual arguments are used to propagate the idea that it is impossible to become wealthy/fit/successful/etc., except for a special few. What gives? Why can't we all achieve a moderate to high level of success--whatever that means to us individually? Is deep inequality simply inherent in humanity? Is it tied to our IQs, upbringings--what?
Last edited by TopHatFox on Thu Aug 18, 2016 12:03 am, edited 10 times in total.

BRUTE
Posts: 3798
Joined: Sat Dec 26, 2015 5:20 pm

Re: Why do the poor stay poor and the rich get richer?

Post by BRUTE »

do they really?

thrifty++
Posts: 1129
Joined: Sat May 23, 2015 3:46 pm

Re: "Why do the poor stay poor and the rich get richer?"

Post by thrifty++ »

I think much of it comes down to a number of features an individual may or may not have. The more you have of these the more likely you will be rich and get richer:

- IQ
- EQ
- physical attractiveness
- come from a stable family
- come from a family with capital
- European
- from a western country
- heterosexual
- freedom from physical and mental disabilities

The less you have of the above the more likely you will be poor and stay poor.

My god I realized as I have written the above down how convinced I am of the above and how depressing that is. And how unfair.

FBeyer
Posts: 1070
Joined: Tue Oct 27, 2015 3:25 am

Re: "Why do the poor stay poor and the rich get richer?"

Post by FBeyer »

Olaz wrote:...Why can't we all achieve a moderate to high level of success...
Have you ever heard about Lake Wobegon? There is something about all the children there as far as I recall.

chenda
Posts: 1614
Joined: Wed Jun 29, 2011 1:17 pm

Re: "Why do the poor stay poor and the rich get richer?"

Post by chenda »

There have been times when the reverse has happened: https://en.m.wikipedia.org/wiki/Trente_Glorieuses

Dragline
Posts: 4436
Joined: Wed Aug 24, 2011 1:50 am

Re: "Why do the poor stay poor and the rich get richer?"

Post by Dragline »

Agreed -- I question the underlying assumption as well, because its only valid for certain people at certain places and times, and the causal factors are almost too numerous to offer any generalizations, except for perhaps that lack of war and lack of widespread disease seems to help those with the least the most.

For example, globally, world poverty is declining:

"There has been marked progress on reducing poverty over the past decades. The world attained the first Millennium Development Goal target—to cut the 1990 poverty rate in half by 2015—five years ahead of schedule, in 2010. In October 2015, the World Bank projected for the first-time, that the number of people living in extreme poverty was expected to have fallen below ten percent."

http://www.worldbank.org/en/topic/poverty/overview

As Pareto observed in the early 1900s, societies have always had power-law distributions of wealth. Historian Ian Morris more recently observed that agricultural societies have a Gini coefficient that averages around .48, whereas modern industrial societies average between .25 and .35.

People in developed countries have fewer excuses, but its usually more productive to consider them individually than make broad generalizations. People would rather gravitate towards simplistic narratives, though, where only a few factors matter.

7Wannabe5
Posts: 6862
Joined: Fri Oct 18, 2013 9:03 am

Re: "Why do the poor stay poor and the rich get richer?"

Post by 7Wannabe5 »

In nature, power law distributions are sign of hierarchy and robustness.

Spartan_Warrior
Posts: 1659
Joined: Fri Dec 02, 2011 1:24 am

Re: "Why do the poor stay poor and the rich get richer?"

Post by Spartan_Warrior »

Compound interest, tax loopholes, and low estate taxes go a long way over time.

IlliniDave
Posts: 3140
Joined: Wed Apr 02, 2014 7:46 pm

Re: "Why do the poor stay poor and the rich get richer?"

Post by IlliniDave »

Aside from extremes, I think you are correct that individual success and well-being is largely up to how the individual views and lives within whatever system they are in. If you restrict "success and well-being" to increasing/maintaining material wealth, then some systems and places are arguably better than others. If your primary worldview is seeing yourself as a victim of circumstance, of a system, of others, then your upside is probably limited. Again, there are places on the planet where the combination of circumstance and system overwhelm anything a person can reasonably be thought capable of achieving, but I don't think what happens there can be generalized to a universal human condition.

In terms of the subject question, I would also challenge the premise, unless you define it in relative terms and ignore all the individual churn in the two populations. If "rich" and "poor" are defined by ongoing relative wealth, then yeah, the group of people with the most wealth tend to be "richer" than the people with the least wealth and it always was and always will be that way. But I would argue that in this country, for example, the "poor" today are in many ways materially better off than the same segment of the population was, say, 100 years ago. And I think that growth in material wealth contributes to why, when dollars are the only measure, the numbers can be misleading. Families in the lower middle class and below 100 years ago weren't buying and maintaining autos, paying for multiple phones, computers, internet service, multiple TVs (and the corresponding cable/satellite packages), air conditioning, eating in restaurants, living in structures with multiple 100s of sq. ft. per occupant, etc.--all the kinds of things we're reexamining here.

GandK
Posts: 1995
Joined: Mon Sep 19, 2011 1:00 pm

Re: "Why do the poor stay poor and the rich get richer?"

Post by GandK »

Riggerjack has an amazing post on this topic, but I don't remember what the thread was.

BRUTE
Posts: 3798
Joined: Sat Dec 26, 2015 5:20 pm

Re: "Why do the poor stay poor and the rich get richer?"

Post by BRUTE »

on the individual/environment scale, brute leans pretty far towards the systemic influences of environments. humans are not as individualistic as they think, and have far less agency than they imagine.

brute believes this is even true for ERE. jacob/some others sometimes wonder why more humans are not "intelligent" enough (or similar) to pull of ERE. brute thinks these humans can't. it looks like they can: white middle class good income. but brute thinks what makes some humans embrace ERE is not more intelligence. it's simply inherent or acquired affinity for an ERE-compatible lifestyle. little requirement to fit in, little identification through social status, little requirement to own shiny new things, relatively high ability to defer gratification. but ERE humans didn't decide to be like this, or to develop these abilities. that's just who whey were or who they became.

brute isn't saying that there's zero individuality or free will (even though the scientific argument against free will is pretty bulletproof), but that it works very differently from what humans imagine they work like.

User avatar
Sclass
Posts: 2101
Joined: Tue Jul 10, 2012 5:15 pm
Location: Orange County, CA

Re: "Why do the poor stay poor and the rich get richer?"

Post by Sclass »

I won't speak for multi generational wealth because I've seen those types get poorer.

Also there are things like civil war that have reduced many a fortune to nil.

My rambling answer is:

Money begets money. If you have money a lot of money (rich as you say) at any snapshot in time that means you just got it or you have been able to accumulate it and hold on to it. Since the probability of the former is lower (lotto anyone?) it is likely you are rich because you have some ability to save and grow your money. People in that group can often rinse repeat...or else the will likely leave that group in time. Spartan Warrior essentially hit it with "compound interest". Not everyone can save a dollar, even fewer can grow it. By selecting for people with a lot of money right now, you probably have many who can do both.

I go to a wealth management luncheon for old people with money once a month. (I watch my mother's finances). I see a lot of old savers in there who have good sized nest eggs. Our net worth is color coded on our name tag. They are not good at growing money so they are there handing over fees. They are soon to be poor and not getting richer. So I think there is a big selection bias in the observation that the rich get richer. You may be looking at the ones who have money and the ability to grow it...and true prolonged exponential growth is an fearsome sight to behold.

There is an interesting game this firm plays with us. They surveyed us and asked how we got the money when joining. Then they gave use back a report about the ten ways they winnowed out of the data to get rich. I forgot all of them, daddy and mummy, marrying, options lottery, entrepreneurs, being famous entertainers...and at the bottom of the list because it was the most boring was saving and investing. The vast majority of the clients were savers who put their money into something that grew but got too old and feeble to trust themselves to keep doing that. Soon to be poor with the fund's fees.

Now let's consider the poor. They cannot save even a dollar. So they are locked out of any compounding mechanism except becoming debtors. So by living day to day and not having any average balance earning a return (in real estate, stocks, bonds, business investments, rare stamps or Pokemon cards) they don't have a ticket to the wealth accumulation game. Your question why do the poor stay poor is kind of like saying "why can't zebras fly."

Olaz, the good news is you are on the right path to getting rich. You too can be rich!

User avatar
Sclass
Posts: 2101
Joined: Tue Jul 10, 2012 5:15 pm
Location: Orange County, CA

Re: "Why do the poor stay poor and the rich get richer?"

Post by Sclass »

Agree with Brute. Building wealth requires discipline. Middle class earners around me actually bring in a good amount of money. They just cannot help but set fire to it.

BRUTE
Posts: 3798
Joined: Sat Dec 26, 2015 5:20 pm

Re: "Why do the poor stay poor and the rich get richer?"

Post by BRUTE »

brute wouldn't even call it discipline. discipline implies humans denied themselves something. brute thinks it's more fundamental, ERE-types just don't desire the same types of things, thus they don't require discipline.

as an example, in his first year of real work, brute had a >50% savings rate. not because he had discipline. he might not even have known about ERE back then. he was blowing money left and right, on motorcycles, track days, all the food he wanted, movies all the time. but everything brute desired just wasn't thaaat expensive. certainly unaffordable for a poor person. but a good salary combined with moderate desires (naturally, not through discipline) gave brute a >50% savings rate without even consciously saving a dime.

batbatmanne
Posts: 33
Joined: Fri Sep 19, 2014 10:35 pm

Re: "Why do the poor stay poor and the rich get richer?"

Post by batbatmanne »

I agree with Brute. The phrase in the topic is meant to refer, I think, to the cycles of poverty and wealth. In both of these cases there are both material influences as well as social influences. For example, a poor person who has to work a significant number of hours per week and also has to take care of their family is going to have very little time to read about strategy about saving money, living a less expensive lifestyle, improving their life conditions, etc. They are going to have little capital to make "investments" in their own education or in the tools that that they might need, that might return a high life ROI, in order to slowly build up the capital to leave their situation. These are material barriers to alleviating their poverty. On the other hand there is an entire culture of marketing that promotes consumption as the solution to life's problems. Social influences don't stop at the corporation, they start there. Poor people will have grown up since childhood alongside others who themselves have been conditioned in this way and have struggled. The consequence here is that an ERE-like solution, a "bootstrapping," is going to be very difficult for the poor person to identify with, to conceive themselves capable of achieving, and it will likely not even appear to be a desirable state of living.

We see something similar to this cycle on the rich end of the spectrum, although the direction of wealth accumulation is of course reversed. Some people have so much money that they cannot spend enough to lower their principal capital. These people are also members of a class who promote their own interests with a significant amount of political power to maintain the status quo or even make things better for themselves.

Where these issues become murky is for the middle class, and this amounts to the majority of the population in developed countries. Most everybody who is a member of this forum started as a member of this class, I imagine. We all see how it is possible to leverage the extra time and capital that we can generate in order to move ourselves towards the wealthy end of the spectrum, although it might have taken some of us a lot of researching and self-reflection. The majority of the middle class is falling for the consumer/debt culture. It can be hard for me to generate a whole lot of sympathy for somebody who I consider to be very materially rich struggling because they have put themselves in a position of significant debt in order to chase personal consumption. When we consider their material and social opportunities, it is clear that anybody in a contemporary developed country has an extreme amount of privilege compared to most humans on the planet now and throughout history. As frustrating as this can be, I think we need to remember that the social influences at play here are extremely powerful and that to those of us who take on an inordinate amount of personal responsibility for the conditions of our lives these can appear to us as small barriers.

Spartan_Warrior
Posts: 1659
Joined: Fri Dec 02, 2011 1:24 am

Re: "Why do the poor stay poor and the rich get richer?"

Post by Spartan_Warrior »

@batbatmanne: "Where these issues become murky is for the middle class, and this amounts to the majority of the population in developed countries. Most everybody who is a member of this forum started as a member of this class, I imagine."

I would argue (and have) that most members of this forum still are middle class; if there are those here with net-worths I would consider to be breaching the wealthy class (e.g. 8 or 9 figures, not 7), they keep their heads low. IMO, ERE as a practice and ERErs as a group are both solidly middle class by definition.

On a related note, no one has defined "the rich". I think that might change how many think about the question. Personally, I think @batbatmanne presented a serviceable definition:

"Some people have so much money that they cannot spend enough to lower their principal capital. These people are also members of a class who promote their own interests with a significant amount of political power to maintain the status quo or even make things better for themselves."

IMO, both qualifications must be met: having so much money one cannot lower their principal--note, this is not that you choose not to spend so much, but that short of giving it away, it would be almost impossible to spend down your capital faster than it compounds; and, you also have so much money you are able to wield political influence (not imagine you wield influence like the average donor or voter).

Tyler9000
Posts: 1692
Joined: Fri Jun 01, 2012 11:45 pm

Re: "Why do the poor stay poor and the rich get richer?"

Post by Tyler9000 »

@Olaz

The Cynical Answer: Contemplate why you're even asking this specific question in the first place. Did you arrive at this conclusion on your own, or has it been taught to you? Believe it or not, people spend a lot of time and money focus-grouping the specific us-vs-them phrasing for statements like this to maximize the chance that the truly rich and powerful among us gain and maintain their power. Judging by the likely voting patterns of your college, the marketing professionals behind the question are right.

The Relative Answer: I suspect the question suffers from selection bias. By all objective measures, even the poorest in the West live tremendously better lives than the average person in much of the rest of the world. Abundant food, healthcare, A/C, television, cellphones -- you name it. So on a global scale, the poor and the rich in the West are both getting richer, albeit at different rates.

The "Unequal Frame of Reference" Answer: Think of the old joke (usually good for an eyeroll if not a laugh): "You know what I like about college girls? Even when I get older, they always stay the same age." Colleges are constantly refreshed by younger people to maintain the same average age, and relative poverty in the West is constantly refreshed by immigration from poorer countries and birthrates that are inversely proportional to socioeconomic status. So even while life within a society gets objectively better for everyone, the appearance in isolation is an ever-widening gap between the wealthiest that keep getting wealthier and the poorest that pretty much stay the same (because they're new to the system).

The Empowering Answer: It's a choice. Very few people directly choose to be poor, of course, but in a wealthy society with widespread opportunity the rich tend to choose behaviors that promote wealth (entrepreneurship, investing), and the poor tend to choose behaviors that promote poverty (instant gratification, debt). See "The Millionaire Next Door". Of course, one can not simply choose to suddenly become a billionaire if that's your sole definition of "rich", but good choices can absolutely improve your status in life with a reasonably high degree of certainty.
Last edited by Tyler9000 on Thu Aug 18, 2016 12:06 pm, edited 3 times in total.

Dragline
Posts: 4436
Joined: Wed Aug 24, 2011 1:50 am

Re: "Why do the poor stay poor and the rich get richer?"

Post by Dragline »

From one of my favorite cult classics (hope you like dark humor): https://www.youtube.com/watch?v=MKIaS0lh-uo

7Wannabe5
Posts: 6862
Joined: Fri Oct 18, 2013 9:03 am

Re: "Why do the poor stay poor and the rich get richer?"

Post by 7Wannabe5 »

Well, I am probably the poorest person who regularly hangs out on this forum, so you might examine me as a test case. I've been a disciple of some flavor of frugality ever since I got over my pubescent mall-shopping-status-seeking phase at about age 15. Compound interest is not a mystery to me, and I first read "Your Money or Your Life" when I was in my early 20s. My IQ is pretty high. I generally tend to think of myself as being lucky rather than a victim. I'm not particularly physically or mentally lazy. My two primary addictive vices are sugar and sex, neither of which is very financially expensive for me. I think it basically comes down to the fact that I have been lacking necessary motivation to make or save more money. I have set my goal date for completing my perma-culture project and achieving financial independence as harvest time 2022, but I am not yet able to tell any of you exactly how this will happen, except that it will likely be through some method much more heavily weighted towards monkey-paw-clutch determination than dogged discipline.

Riggerjack
Posts: 2994
Joined: Thu Jul 14, 2011 3:09 am

Re: "Why do the poor stay poor and the rich get richer?"

Post by Riggerjack »

Riggerjack has an amazing post on this topic, but I don't remember what the thread was.
Thanks it is good to see that some of my ramblings find an audience. Felix and I went the full 12 rounds, a few times over this. I'm on my phone, and don't have time to find the old threads. It's there, with links, and numbers deconstructed, if anyone is interested.

The short version is that the census data is rich enough to form and support any story you want. Middle class is stagnant? Yup, use median earner. Massive improvement? Yup. Use either end of income, and compare like to like. Massive concentration of wealth, improvement of the poor, suppression of the poor, blah blah, it's all as legitimate as the data mining query.

So, victim or agency. Whoever is telling you the story,is trying to convince you of one or the other. To me, then, the interesting question is "why?". Usually, it is a justification of their personal feelings. I, am a big proponent of agency. I have changed my life. I know others who have. Andi know far more who don't.

The primary difference between the groups is belief in agency. When you believe in your own powerlessness, it is self fulfilling prophecy. But the upside is 2 fold: you are not to blame when things go wrong, and because you are a victim, you are justified in whatever petty actions of "vengeance" you take. This mix of justification and freedom from responsibility is a heady mix for some people. Some people will dedicate their lives to it.

I won't say they are wrong, I will say that any form of "success" they achieve would not feel like success to me. Vice versa, I'm sure.

Life is full of storylines people tell themselves to make sense of their lives. Pick the one that leads to where you want to go.

Post Reply