Last-Place Aversion: Why America's Poor May Not Be as In Favor of Taxing The Rich as You'd Think
August 16, 2011 10:03 AM Subscribe

Poverty may be miserable. But being able to feel a bit better-off than someone else makes it a bit more bearable. Economists from the National Bureau of Economic Research suggest that people near the bottom end of financial inequity are less likely to be in favour of programs that will help increase their income if those programs will also help those lower on the scale than they are.

...the authors of the new paper argue that people don’t like to be at the bottom. One paradoxical consequence of this “last-place aversion” is that some poor people may be vociferously opposed to the kinds of policies that would actually raise their own income a bit but that might also push those who are poorer than them into comparable or higher positions. The authors ran a series of experiments where students were randomly allotted sums of money, separated by $1, and informed about the “income distribution” that resulted. They were then given another $2, which they could give either to the person directly above or below them in the distribution. The people who were a spot away from the bottom were the most likely to give the money to the person above them..

This may also explain why Warren Buffet's cry to stop coddling the rich (previously) will continue to fall on deaf ears.
posted by asnider (137 comments total) 23 users marked this as a favorite

Yes because 'students' exemplify every impulse of 'the poor'.
posted by spicynuts at 10:05 AM on August 16, 2011 [18 favorites]

Poor give more money to charity than wealthy.
posted by stavrogin at 10:08 AM on August 16, 2011 [6 favorites]

This might be a real effect, but why have most other civilized countries established socialist policies for healthcare, etc., when they have wealth inequality? It also helps to have an established scale called racism to determine who's above and below you.
posted by benzenedream at 10:10 AM on August 16, 2011 [4 favorites]

Is there some reason why we can't give money to people in a way that preserves the existing ranking? I'm thinking the tax system in reverse -- if your pre-tax income is higher, then (blah blah blah deductions exemptions credits blah blah blah) your post-tax income is higher as well. There are very few situations where making more money causes you to have less money after taxes, despite what Joe the Plumber may have told us.
posted by madcaptenor at 10:11 AM on August 16, 2011 [2 favorites]

It also helps to have an established scale called racism to determine who's above and below you.

The article suggests that countries with larger immigrant populations are typically less willing to raise taxes to pay for welfare programs. So, yes, racism (or at least xenophobia) may also be a factor.
posted by asnider at 10:13 AM on August 16, 2011

As anyone who was unpopular in junior high can tell you, there's nothing that makes existence near the bottom of the social ladder less awful than someone else below you.
posted by gottabefunky at 10:14 AM on August 16, 2011 [14 favorites]

Why America's Poor May Not Be as Opposed to Taxing The Rich as You'd Think

In rewriting this headline, the meaning seems to have changed to the opposite of what was found. Surely 'the poor may not be as supportive of taxing the rich as you'd think' would make more sense in this context.

This might be a real effect, but why have most other civilized countries established socialist policies for healthcare, etc., when they have wealth inequality?

Because most countries are less democratic than the United States, and are governed on the assumption that most people don't know what's good for them in the short term.
posted by anigbrowl at 10:15 AM on August 16, 2011

As anigbrowl points out, I pooched the post title. It should actually read: Last-Place Aversion: Why America's Poor May Not Be as ~~Opposed to~~ In Favor of Taxing the Rich as You'd Think.

I've contacted the mods to get this fixed.
posted by asnider at 10:17 AM on August 16, 2011

> As anyone who was unpopular in junior high can tell you, there's nothing that makes existence near the bottom of the social ladder less awful than someone else below you.

This is true. On a High School Popularity scale from 1 to 10 I ranked about a 3 or 4, and one of the very few things I was thankful for at that age was the existence of the 1s and 2s.
posted by The Card Cheat at 10:18 AM on August 16, 2011 [4 favorites]

It might get at the altruistic tendencies, or lack thereof, of people in general, but unless you are running this on actual poor people who are experiencing the actual misery/stress/anxiety of actually being poor, you're just jerking off in the psychology teapot.

In other words, not everyone is WEIRD.
posted by madcaptenor at 10:19 AM on August 16, 2011 [4 favorites]

Fixed!
posted by cortex at 10:19 AM on August 16, 2011 [1 favorite]

Some of the people most violently opposed to things like real universal healthcare are just hovering above subsistence, or are sometimes below it. In my experiences dealing with people who are very nearly indigent, a not insignificant portion are incredibly outraged, not about accepting state help themselves, but that any money should be spent that might - might! - help those even poorer than themselves. It's revolting.
posted by 1adam12 at 10:26 AM on August 16, 2011 [1 favorite]

So what we're seeing is a country with a case of "fuck you, got... jack."
posted by griphus at 10:27 AM on August 16, 2011 [3 favorites]

Honestly, I see this all the time.

How many times have you seen someone railing against union workers and their "insane pay and benefits, and job security, and....." And then, incredibly, their suggestion to fix things is not "why can't I have that?", it's "knock those guys down to my level."

It's mind-boggling how stupid and petty people can be.
posted by Benny Andajetz at 10:32 AM on August 16, 2011 [39 favorites]

This has nothing to so with voting patterns. The poor who vote Republican/Conservative don't vote that way because they care about tax rates, wealth distribution, or entitlement programs. They do so because Republicans/Conservatives are the party of flag-waving jingoism, no gun control, a strong military, Jesus, marriage between a man and a woman, etc, etc.
posted by rocket88 at 10:33 AM on August 16, 2011 [4 favorites]

This has nothing to so with voting patterns.

Cite, please. That rings false to me. I've known fiscally conservative poor people who are not particularly socially conservative.
posted by gurple at 10:36 AM on August 16, 2011

unless you are running this on actual poor people who are experiencing the actual misery/stress/anxiety of actually being poor, you're just jerking off in the psychology teapot

And if they were running the same experiments with people who were poor you'd be complaining that they were treating the poor like lab rats and that their results were invalid on ethical grounds. Nothing novel that comes out of an academic department in relation to poverty will ever be acceptable to you.

Meanwhile, both article and the papers cited therein provide abundant evidence for the phenomenon of people near the bottom of the economic pile being opposed to fiscal redistribution. That tendency is well-known; the experiment merely posits an explanation for why that might be the case. A great deal has been written about the closely related phenomenon of conspicuous consumption, where people signal as a differentiator of economic status. The fraction of limited resources that are spent on this activity is in inverse proportion to the probability of assigning resources to the less well-off, by definition. Here is some interesting research on the subject from India.
posted by anigbrowl at 10:36 AM on August 16, 2011 [10 favorites]

Poor is not the same as humble. Rich is not the same as arrogant (or prideful). Those are independant variables. There are greedy, hateful poor people and generous, kind rich people. Please don't assume that your income level says anything more about you than how much money you make.
posted by blue_beetle at 10:37 AM on August 16, 2011 [4 favorites]

these types of experiments are designed to be done hundreds of times to get at the root of behavior, not to form a simulation of real-world events.

How is behaviour somehow separable from real-world events?
posted by docgonzo at 10:41 AM on August 16, 2011 [2 favorites]

How many times have you seen someone railing against union workers and their "insane pay and benefits, and job security, and....." And then, incredibly, their suggestion to fix things is not "why can't I have that?", it's "knock those guys down to my level."

How many times have you seen someone railing against ~~union workers~~ rich people and their "insane pay and benefits, and job security, and....." And then, incredibly, their suggestion to fix things is not "why can't I have that?", it's "knock those guys down to my level."

It's not a left-right thing. The 'eat the rich' mantra on the left can be just as absurd as the 'no taxes, ever' mantra on the right when taken to sufficient extremes. The right hates people being made better off by government, the left hates people being made better off by business. From a centrist point of view both approaches are hopelessly self-defeating.
posted by anigbrowl at 10:42 AM on August 16, 2011 [7 favorites]

I've always thought this is the same motivation for racism. It's not true of all the poor, but I think it's true at least some of the time.
posted by theora55 at 10:43 AM on August 16, 2011 [1 favorite]

It's mind-boggling how stupid and petty people can be.

Stupid? Maybe. But leave NASCAR out of this.
Let's not play the race card.
posted by hal9k at 10:44 AM on August 16, 2011 [21 favorites]

The right hates people being made better off by government, the left hates people being made better off by business.

The right hates poor and middle-class people (i.e., almost everyone) being made better off by government at what they feel (sometimes head-scratchingly) is their own expense. The left hates upper-middle class people and richer (i.e., roughly the top 5% or so) being made better off by business and not contributing a big chunk of those gains back to the rest of society.

These things aren't really equivalent.
posted by gurple at 10:47 AM on August 16, 2011 [40 favorites]

MetaFilter: jerking off in the teapot
posted by the mad poster! at 10:48 AM on August 16, 2011 [3 favorites]

This is a fascinating study.

It's a fact that there is a serious competitive survivalism going on with people who're poor, so this behavior is indeed accurate. There is a deep need in people to feel better about themselves by putting down others and it comes down to a personal sense of exceptionalism.

Which is interesting, that word I just used inadvertently is, when you think of this deplorable bit of sunshine up the ass of proto-fascists the Tea Taliban uses when it refers to American Exceptionalism.

I guess if I was to define the idea of Exceptionalism - it is that you, because you are you, have more right to something than someone else has, and therefore you consequently, have a right to put away some ideas of right and wrong, as you do something clearly self-centered and immoral, but because you have that magic self-designation, you can do it with a clear conscience.

If that sounds like the biggest pile of ethically corrupt horseshit you've heard in a while, well I'd say your right.

(Welcome to the US of A, circa the 21st Century, where the golden rule has plugged it's own head up it's ass and presented as an improvement.)

Anyhow, I'd also bet a poor person would help out another person in need way before a wealthy person would. It's always been such that the poor, can understand and truly empathize with another's troubles.
posted by Skygazer at 10:48 AM on August 16, 2011 [3 favorites]

If you read anything from the right, or have right wing or conservative friends, listen to what they are saying. It's not about "helping the poor". It's always "taking from me and giving to people who won't work". This resonates with lots of people - everyone has experience with family or friends who just seem to leech incessantly. At some point, you have to give them "tough love".

The problem is that there are enough people who fit the stereotypical lazy poor, that this idea is perpetuated. A related component is that the poor are stigmatized as having a moral failure - if they worked harder and didn't blow their money on drugs, beer, and cigarettes, they'd be middle class, just like "everyone" was in 1955. They'd have a modest home, car, and a neat, tidy little lawn. Whether it's true or accurate isn't important; it's true enough to undercut the left's attempts at helping the poor and working class families.

Add to that the conservative suspicion that the left is simply trying to buy votes with taxpayer dollars....it should be obvious where the resentment is coming from. Working class poor and lower-middle class families buy into this as well.

What the left, and Democrats, need to do is to communicate that helping the poor and working class benefits everyone. They need to sell the program. In order to do this, a few things need to happen: a) it needs to be true; b)it needs to be clear; c) it needs to be simple. Sharpen that message and drive it home, incessantly.

As for the stereotypical lazy poor who deserve their situation? Instead of dismissing this as right wing drivel, address it head on. Explain that the cost of controlling the problem and the cost of the problem need to be in equilibrium. Too far one way or too far the other, all those dollars are wasted. How much are these costs to be tolerated? This is a sticky situation, because it's very subjective, and certainly prone to political manipulation. On top of that, it's a difficult concept to communicate simply and clearly.

One last thing - the left has lost a lot of its mandate over the last fifty years because it has been successful. People are not starving like they were in 1935. The perception of poverty these days means not having a flat screen TV. The truth is much worse, but the real problems are not as widespread as they used to be. You can see what happened to the left in the 1970's - they began embracing social equality instead of subsistence issues - and they ran smack dab into conservative WTFism. Reagan and the rise of the right post Reagan are a direct response to the success of the left. "They got Medicare and Medicaid on us, now they want us to marry gays and take our guns". The left's eagerness to be proactive on the flavor of the decade scares conservatives. They see the slippery slope, and they don't like it.

I would bet that we still have a ways to fall before the majority of poll-going voters decide enough is enough.
posted by Xoebe at 10:49 AM on August 16, 2011 [43 favorites]

I remember a political cartoon from history class. It features a redneck sitting on the shoulders of a black man, who is up to his neck in water. I can't remember the caption, but the idea was the same. Maybe: "Keepin me down isn't gettin you any higher." For that matter, if this water keeps rising, you're next.

I much prefer the sentiment: "The only time you should look down on your fellow man is to help him up."
posted by Eideteker at 10:50 AM on August 16, 2011 [1 favorite]

anigbrowl:

I think you're setting up a false equivalency.

Attempting to make things equitable is not the same as knocking people down, much like allowing unions for everyone is not the same as banning unions for everyone.

On preview, I'm not the only one that sees that, apparently.
posted by Benny Andajetz at 10:50 AM on August 16, 2011 [6 favorites]

They were then given another $2, which they could give either to the person directly above or below them in the distribution.

It seems to me that this creates an unrealistic constraint where the topmost person can't give directly to the person at the bottom of the income distribution. They're forced to give their $2 to the person ranked directly below them. It also forces the bottom ranking person to give their $2 to the person above them so at best the bottom rank can break even, provided the person above them gives them $2. At worst, they end up where they started.
posted by hoppytoad at 10:51 AM on August 16, 2011

There are greedy, hateful poor people and generous, kind rich people.

Wrong. One thing I've learned on Metafilter is that every poor person is virtuous and noble and works 3 jobs for less than minimum wage and the only time rich lift a finger it's to write a check to their tax lobbyist.
posted by gagglezoomer at 10:53 AM on August 16, 2011 [2 favorites]

Huh. This runs directly contrary to the experiences I had growing up.

Shared hardship made us all aware of what our friends and neighbors were facing. The dream was for someone to make it up and out of our financial straights, if for no other reason than to believe that we could too.

I would be very careful trying to apply what strangers in a lab experiment did to the reality of how communities behave.
posted by Tell Me No Lies at 10:53 AM on August 16, 2011 [2 favorites]

What the left, and Democrats, need to do is to communicate that helping the poor and working class benefits everyone. They need to sell the program. In order to do this, a few things need to happen: a) it needs to be true; b)it needs to be clear; c) it needs to be simple. Sharpen that message and drive it home, incessantly.

I would gladly donate to the Democratic Party if they would hire a proper PR Firm already.
posted by Mister Fabulous at 10:54 AM on August 16, 2011 [6 favorites]

I don't think the incidence of this attitude is a function of poverty; I knew a guy once who had a huge chip on his shoulder over the fact that his daddy only gave him a million dollars to set up his won business with (compared to the other son who apparently received more affection and more $). Indeed, I've met quite a few rich people who are chronically insecure and status-hungry to the point of not really enjoying their assets at all.

On the other hand, while such behavior may be limiting for a rich person (insofar as it prevents them making more money or enjoying life to a greater degree as a happy and confident individual), it's rational insofar as being tight-fisted may improve their economic position anyway due to compounding and so forth. It's irrational for a poor person to do the same, though, because although redistribution may bring about a decline in their relative standing it would still lead to an improvement in their absolute standard of living.

Of course, it's irrational if it is true that relative economic standing is the only mechanism at work here. A lot of fiscally conservative poor people would say they're more worried about a free-rider problem, and though they may be misinformed - even willfully so - about the incidence of free riding among their contemporaries, the principle is rational enough.
posted by anigbrowl at 10:55 AM on August 16, 2011

There are very few situations where making more money causes you to have less money after taxes, despite what Joe the Plumber may have told us.

There are exactly none of those situations under our tax code. Ever. Period.
posted by saulgoodman at 10:59 AM on August 16, 2011 [23 favorites]

There are exactly none of those situations under our tax code. Ever. Period.

I wanted to say that, but since I don't know the entire tax code I hedged a bit.
posted by madcaptenor at 11:03 AM on August 16, 2011 [1 favorite]

I'd also bet a poor person would help out another person in need way before a wealthy person would. It's always been such that the poor, can understand and truly empathize with another's troubles.

As a real world example against this assumption, there was a BBC radio documentary on money-lenders in rural India that has stuck in my mind. The practise in villages is that the guy with a bit of money "helps out" those in need with loans but extracts such usurious interest that the beneficiaries of his help become in effect indentured slaves, unable to ever pay off the loan. After making the docu, the producers rewarded a vilager who had helped them and was in debt by giving him a sum of money that paid off his debt and a bit more in addition. Asking him what he would do with his bit of extra, he replied "I'll become a money-lender of course."
posted by binturong at 11:04 AM on August 16, 2011 [4 favorites]

There are very few situations where making more money causes you to have less money after taxes, despite what Joe the Plumber may have told us.

You must be living in a world where the tax burden is a continuous function of income. I happen to live in America where we have tax brackets, and for those of us who made a few K more one year my rate increased to the point where I paid nearly double my extra income in additional income taxes.
posted by chimaera at 11:04 AM on August 16, 2011 [1 favorite]

Pity would be no more, if we did not make somebody poor. And mercy no longer could be, if all were as happy as we.

(Blake, couple of centuries ago)
posted by gimonca at 11:04 AM on August 16, 2011 [1 favorite]

spciynuts, these types of experiments are designed to be done hundreds of times to get at the root of behavior, not to form a simulation of real-world events. The experiment could've been done with any sort of person, using any sort of reward, the $1 is symbolic.

How do you know it could have been done with any kind of person? Maybe students behaves in certain ways, while the poor behave in other ways.

This is the problem I have with so many psychology studies. They assume students are representative of everyone (or in this case, the "poor," which doesn't describe all students; moreover, even if all the students were poor, there are other kinds of poor people). And if we point out this flaw, the response is just: "But we tested a lot of people." But we're not questioning whether the sample size was large enough. The flaw is qualitative, not quantitative.
posted by John Cohen at 11:06 AM on August 16, 2011 [3 favorites]

gagglezoomer: One thing I've learned on Metafilter is that every poor person is virtuous and noble and works 3 jobs for less than minimum wage and the only time rich lift a finger it's to write a check to their tax lobbyist.

So, what you've learned here is a winger's generic inaccurate stereotype of what a "librul" believes?

Neat trick.
posted by Skygazer at 11:07 AM on August 16, 2011 [4 favorites]

Is the "free rider" problem a uniquely American concern, or do other societies share it?

What if housing vouchers, enough food to live on, and medical care were all handed out to each citizen, with more successful citizens able to take a cash payment instead if their circumstances allowed? In other words, everyone gets the equivalent of (say) $20,000 a year from the government, the richer can take it in cash, the poorer get it in housing and food. In other words, you never have to go into debt for life's basics, and they cannot be taken away from you if you get into debt elsewhere. You could lose your fancy house and expensive cars if you blow it all on cocaine, but at worst you end up in an apartment (paid by voucher, not government housing, as such).

This is similar to what happens now, in a way, but allows everyone to feel like they "got theirs". There would be a way for the well off to check a box, if they wished, to take a $20,000 credit against their taxable income.
posted by maxwelton at 11:08 AM on August 16, 2011 [3 favorites]

You must be living in a world where the tax burden is a continuous function of income. I happen to live in America where we have tax brackets, and for those of us who made a few K more one year my rate increased to the point where I paid nearly double my extra income in additional income taxes.

In America, when you enter a higher tax bracket, only your income above the start of that bracket is taxed at the higher rate. Perhaps you misunderstood this and got a gigantic refund that year?
posted by gurple at 11:10 AM on August 16, 2011 [21 favorites]

You must be living in a world where the tax burden is a continuous function of income. I happen to live in America where we have tax brackets, and for those of us who made a few K more one year my rate increased to the point where I paid nearly double my extra income in additional income taxes.

I call BS on this. We have a progressive tax system. You pay x% on your first $x of income, and then y% on the next $y of income, and so on.
posted by maxwelton at 11:11 AM on August 16, 2011 [17 favorites]

FYI chimaera: You screwed up your taxes. Check your math, fix it, and file a 1040X for a refund. If you write up an AskMe question about your situation, I can help you through it.
posted by 0xFCAF at 11:12 AM on August 16, 2011 [25 favorites]

There are very few situations where making more money causes you to have less money after taxes, despite what Joe the Plumber may have told us.

i'm pretty sure there are NO situations like this.
posted by Miko at 11:13 AM on August 16, 2011 [2 favorites]

You must be living in a world where the tax burden is a continuous function of income.

See these tables here. There's a tax bracket cutoff at $83,600 for single payers, which I'll use for illustration. If you make $83,500, which puts you at the very top of the 25% bracket, you owe $4,750 plus 25% of the excess over $34,500. That's $4,750 + (0.25)($83,500 - $34,500) = $4,750 + (0.25)($49,000) = $4,750 + $12,250 = $17,000.

If you make $83,700, which puts you at the very bottom of the 28% bracket, you owe $17,025 plus 28% of the excess over $83,600; that's $17,025 plus $28, or $17,053. $200 raise in income, $53 raise in tax. In fact, at least on the table that converts "taxable income" to "tax", tax is a continuous function of income. For every epsilon there is a delta, blah blah blah.

It's not fair to compare your income taxes in year N to your income taxes in year N+1; something else about your situation probably changed between those years. What I'm saying is that if you increase your income by $X, and everything else stays the same, your tax goes up by somewhere between $0 and $X. (So you pay more taxes, but make more income as well.)
posted by madcaptenor at 11:13 AM on August 16, 2011 [13 favorites]

I must retract my previous statement -- turns out I did have income by withdrawing from a 401k for a house purchase that got taxed as income. My salary didn't change much but my "income" was definitely higher. Carry on.
posted by chimaera at 11:14 AM on August 16, 2011 [7 favorites]

...without even looking at deducations beyond standard.
posted by Miko at 11:14 AM on August 16, 2011

I'm not satisfied by the interpretation of the results of this experiment. I think too much is being read into them. (Note that this is not to say that I don't think the interpretation the authors went with is true, just that I don't think you can get there on the basis of this study alone. It's important in science not to let your expectations bias your interpretation of the results of experiments.)

I would like to see a similar experiment, where people are lined up in a row, facing an experimenter who is tossing balls at random to people in the line. When a person receives a ball, they can choose to give it either to the person on their left, or on their right. I predict that the people towards both ends of the line (note there is no notion of "highest" and "lowest" here) would show a preference for passing the ball towards the middle of the line. So, more of an "end aversion" than a last-place aversion. If we do get that result, than we can expect it to translate to the money case as well. The experimenters would either have to build this finding into their narrative, or design an experiment that removes it as a confounding factor.

(Note: I'm not entirely happy with the experimental design I proposed, either. I think people may express a preference for one direction (left vs. right) over the other. It may be encoded physically, such as typical right-hand dominance, or culturally, such as directionality of reading (left-to-right vs. right-to-left). Perhaps another experiment would have to be conducted to factor out those effects. Or maybe there's a better design for the experiment I proposed. But hopefully you get my point.)
posted by mantecol at 11:15 AM on August 16, 2011

anigbrowl: your argument looks like a false equivalence to me — most of the discourse on the left (insofar as a "left" exists anymore) is about how the best plan is to tax the extremely wealthy in order to pay for infrastructure and welfare measures that will make more peoples' lives better, not about how we should tax the wealthy to make the wealthy poorer.

That's why I added the qualifier 'when taken to sufficient extremes'. I lean left, like the idea of progressive taxation, and think that things like healthcare, education, and infrastructure should be publicly funded. But I also think it's OK to raise the retirement age, use some standardized testing metrics to measure productivity, and have competition from the private sector.

now, you know as well as I that there are some people on the left who know nothing about economics and live in a fantasy world where the rich should be taxed at 90% and nobody should ever make a profit by investing in anything, just as there are some people on the right who think income taxes should be abolished altogether and nobody but a helpless cripple should be given any charity or public assistance whatsoever. It's not as if one political alignment is automatically more enlightened than the other, which is why every successful country has a mixed economy. Countries like Sweden, Germany and New Zealand all have strong private as well as public sectors, and there's a healthy intellectual give-and-take between them.

America is quite polarized these days, to the point that adherents of one philosophy have become unwilling to countenance the idea that it can ever be dysfunctional or that anything good can come from the other side of the aisle. I'm not sure why, although I suspect, as I hinted above, that it's the result of an excess of democracy. In the US you can vote on anything and everything, from who gets to be President to who should be the local dog catcher. Given that most people don't have the time, education or inclination to rigorously analyze every candidate and ballot initiative in detail, this actually leads (IMHO) to a diffusion of accountability, because there are so many elected offices that the buck can be passed around for longer than any given electoral cycle and frequently is. Parliamentary systems have somewhat too little democracy for my taste, but one upside is that when they screw up electoral punishment is usually more intense. This also leads to more pluralism, which is a good thing. But deep down, I still slightly prefer the American system - when it's working it's more dynamic and the barriers to participation are much lower.
posted by anigbrowl at 11:15 AM on August 16, 2011 [3 favorites]

A ball has no emotional resonance. I think the experiment does reveal this fear of being in last place as well as a preference for currying favor up the chain, aligning oneself with someone perceived as more of a "winner." If you think like them and do like them, you must be a "winner" too, regardless of your place on the chain.

They should replicate it while giving only the top 10 people the option to keep their two dollars, while everyone else must put theirs into circulation, and play a few more rounds, and see what happens.
posted by Miko at 11:17 AM on August 16, 2011 [4 favorites]

This might be a real effect, but why have most other civilized countries established socialist policies for healthcare, etc., when they have wealth inequality?

If you're talking about the UK and Europe, most of those countries still have at least some vestige of a class system; they vividly remember when everything was owned and controlled by a hereditary aristocracy, and in some places to a greater or lesser degree it still is.

So the poorer innately feel more solidarity irrespective of degree; although of late the racial and immigration issue is starting to distort that.

Here in the US we have the Horatio Alger mythology that the rich are just you if you play your hand right. It's bullshit in all but a tiny fraction of a percent of the time -- basically the equivalent of working incredibly hard, being a _very_ good networker _and_ winning the lottery -- but we still believe it. We don't see the one-percenters as being a ruling class that forever excludes us, but for the vast majority that's precisely what it is. Perversely, the US now trails Europe in upward mobility and has for some time.
posted by George_Spiggott at 11:21 AM on August 16, 2011

This reminds me of a great bit in the documentary The Trap where John Nash talks about the egoistic, distrustful models he created and basically went, "Uh, I was a paranoid schizophrenic who thought everybody was out to get me at the time."
posted by mobunited at 11:21 AM on August 16, 2011 [5 favorites]

Is the "free rider" problem a uniquely American concern, or do other societies share it?

Oh, that's not unique at all. I've run across it in every other country I've lived in, and primate studies suggests a concern with fairness is instinctual rather than intellectual. Note that I'm not endorsing the typical right-wing depiction of the free-rider problem, which is wildly exaggerated and counterfactual.
posted by anigbrowl at 11:22 AM on August 16, 2011

This sounds like that study where people would rather withhold sufficient food from two underfed children then give one of them five times as much food.
posted by michaelh at 11:23 AM on August 16, 2011

When I was poor and I met someone in direr straits than me, it had the opposite effect. Firstly, my sympathy glands went into overdrive and then my panic glands followed suit. Because I thought, "Shit - look how much worse this could get!" It didn't make my situation more bearable at all.
posted by Decani at 11:23 AM on August 16, 2011 [8 favorites]

A ball has no emotional resonance.

Just in case I wasn't clear (it's late here and I'm dead tired), I don't think the experiment I proposed should replace the existing one. I think there may be layers of effects here that are not being separated out by the experiment.

- First: When choosing a direction to pass things along a line, does proximity to the ends of the line have an effect?
- Second: How does this change when one of the ends is called "top" and one is called "bottom"?
- Third: How do things change when the thing you are passing/amassing is wealth?

If you have experimental ideas of your own, I'd love to hear them. I love thinking about this sort of thing.
posted by mantecol at 11:24 AM on August 16, 2011

These sorts of studies do have huge problems with external validity. The behavior of rich white students who derive most of their career advantages (especially in school) from zero-sum competitions may be very different from the behavior of actual poor people (and of course "poor people" is not a monolithic block either). Furthermore, the game they played is nothing like almost any conceivable real-world scenario; there are very few taxation plans that would take enough money from a semi-poor person to bump a very-poor person above them, if for no other reason than that semi-poor people pay a small proportion of the total taxes. Furthermore, almost no one understands how such government programs work, and insofar as they think they do, most redistribution opponents have learned it from things like Fox News, which of course has introduced many, many other conceptual frameworks against taxes, helping the poor, government efficacy, etc.

It's amazing to me how economists manage to put out study after study like this, each purporting to show the uselessness of liberal goals, each eagerly over-generalized to make sweeping claims about human nature, based on the thinest reed of a stylized game played by college students. I don't think they do it on purpose, but there is clearly some sort of institutional oddity in that field that leads to such stuff.
posted by chortly at 11:27 AM on August 16, 2011 [1 favorite]

Well, I think the thing is that that experiment would be more about geometry, and this one is about the distribution of something with value. It might be an interesting experiment but it's testing a different hypothesis.

Once you introduce an object with value and an A to Z ranking, the effects will change, and they will look like the effects of this experiment (assuming it's valid). That's your #3.
posted by Miko at 11:27 AM on August 16, 2011 [1 favorite]

The difficulty is that you can either wrestle with horribly messy real-world data in which no causes can be isolated, or you can try to develop a single hypothesis and test it. Responsible social scientists will not look at any result like this in isolation - they'll throw it in the hopper with findings from other studies and try to consider what the general tendencies are. I agree that college students do not think or behave in a way that is always representational of the broader population - a million studies on gender dynamics have certainly convinced me of that - but if the tendency is observable here, and the results can be replicated across other population samples, then you're onto something.

I also agree that single studies get extrapolated ridiculously in the popular press and reported as if they reflect a new factual understanding about people. They don't. They are tiny bits of data.
posted by Miko at 11:30 AM on August 16, 2011 [2 favorites]

They should replicate it while giving only the top 10 people the option to keep their two dollars, while everyone else must put theirs into circulation, and play a few more rounds, and see what happens.

There's an interesting economics experiment derived from auction theory; to remove confusion about the value of an item (such as an antique), you get people to bid on a sum of money, like a $10 bill. The catch is that the highest bidder wins, but both the highest bidder and the second-highest bidder must pay - in other words, you put your money down when you make your bid. Now, the rational thing to do in such a situation would be to quit when the bidding reaches $5 and $4.99, because the next bid will be a net loss for both participants. but because people typically hate to be losers, they will often bid up to double the value of the prize (say $10 and $9.99) in order to maximize the others' loss, even at no gain to themselves. Some economics professors report that left to themselves, people will even bid more than the value of the prize, for an individual as well as a net loss.
posted by anigbrowl at 11:32 AM on August 16, 2011 [2 favorites]

net among the auction participants, that is.
posted by anigbrowl at 11:32 AM on August 16, 2011

I've always thought this is the same motivation for racism.

It's definitely of a kind with some of the motivations for racism. It's also a factor in the surprisingly virulent homophobia and opposition to gay marriage found among black Americans.

I've long thought that one of the tragedies of Southern history is the fact that rich white Southern business men were able to convince poor white Southerners to ignore the similarities between rich white Southern businessmen and their Northern counterparts and to ignore the similarities between black slaves and poor white Southerners. As a consequence of that deception, poor (and non-wealthy merchant class) Southern whites thought they were acting in their own interests by throwing in with the slave owners when they were really supporting a system that was as keenly interested in exploiting them as it was the slaves.

There's a lot of alt history where the South wins the Civil War, but I'd love to see some where the poor Southern whites said, "Yeah...no" when the slave owners stepped to them with false claims of common cause and instead united with the slaves to overthrow the whole corrupt system.
posted by lord_wolf at 11:33 AM on August 16, 2011 [5 favorites]

Yes because 'students' exemplify every impulse of 'the poor'.

spciynuts, these types of experiments are designed to be done hundreds of times to get at the root of behavior, not to form a simulation of real-world events. The experiment could've been done with any sort of person, using any sort of reward, the $1 is symbolic.

One of the great difficulties in social psychology is this:

You can run experiments in highly controlled, artificial settings (typically with college freshmen). This allows you to discover exactly how your independent variable(s) is(are) affecting your dependent variable(s). Unfortunately, it is very difficult to know whether your study has any real-world validity - i.e. does it reflect how different people actually behave outside of the limited, artificial setting of your study.

Conversely, you can observe how people actually behave out in the real world. The drawback here is that it very difficult to isolate which of the multitude of variables at hand are actually producing the behavior you are watching.

Given these limitations, it is a good idea to avoid the thought that any single social psychological study proves anything. At best it will provide good food for thought and impetus for further research.
posted by tdismukes at 11:34 AM on August 16, 2011 [2 favorites]

> There are exactly none of those situations under our tax code. Ever. Period.
> posted by saulgoodman at 1:59 PM on August 16 [1 favorite +] [!]

I lived such a situation but the code may have changed since then. I had one of those very low wage academic jobs that people still complain about (apparently that hasn't changed.) I was a lab manager (formally "research coordinator III") and was selected as employee of the year for my department, which came with a five hundred buck prize. That additional five hundred of income put my family over the limit for earned income credit. The earned income credit we no longer qualified for was more than $500.
posted by jfuller at 11:35 AM on August 16, 2011 [4 favorites]

- First: When choosing a direction to pass things along a line, does proximity to the ends of the line have an effect?

I think it would be more interesting to have the participants arranged in a circle instead of a line - this would allow you to measure any bias arising from people being left-handed or right-handed and so forth. Then you could start doing things with money, and trying out the effect of different rules (eg that you should pass one half the money if you have more or less than a particular threshold and so forth. The circular arrangement might serve as a useful proxy for the fact of monetary circulation, without needing to add artificial variables for work.
posted by anigbrowl at 11:37 AM on August 16, 2011

I like it!
posted by mantecol at 11:38 AM on August 16, 2011

I noticed how strong this was when BC last raised its minimum wage; the people most violently opposed were those who were already making a couple bucks above the minimum wage (11-13/hr). The argument I repeatedly heard was, it wasn't fair that people making less than them got a "free raise" and they didn't. I tried to explain that improving the lot of those worse off does not harm them directly or indirectly, but they just saw other people getting free money and them getting nothing.
posted by mek at 11:38 AM on August 16, 2011 [4 favorites]

jfuller: the EIC now has a phase-in and phase-out, so that doesn't happen any more.
posted by madcaptenor at 11:38 AM on August 16, 2011 [3 favorites]

Those people talking about the poor helping out the poor more than the rich do, are just illustrating another facet of the psychology being studied.
Frequently, giving money to someone needy is status-related behavior for someone poor. Person A is able to give money to person B, therefore person A feels 'above' person B.
posted by bashos_frog at 11:39 AM on August 16, 2011

Frequently, giving money to someone needy is status-related behavior for someone poor. Person A is able to give money to person B, therefore person A feels 'above' person B.

I'm sorry, where are you getting this from?
posted by George_Spiggott at 11:43 AM on August 16, 2011 [2 favorites]

- this would allow you to measure any bias arising from people being left-handed or right-handed and so forth.

I don't know that we can assume there's a handedness bias that you can eradicate. You could run this same experiment just by filling out a piece of paper directly in front of you, not handing anything to anyone at all. Also, assuming there is a bias, it might be a bias in the brain, not the hands themselves finding one motion easier than another, and so it may not be one you can isolate by changing the physical setup to a circle.
posted by Miko at 11:43 AM on August 16, 2011

Tn the case you describe, jfuller, you weren't able to exploit one of the many special exemptions on normal taxation in our tax code, and that made your tax burden higher. No one has to claim the EIC--it's an example of a special credit, a targeted tax break. You were getting a deal on your taxes by claiming the EIC, but you stopped qualifying for that deal once your income exceeded a certain point. Your basic tax liabilities on the first bracket of income didn't change.

Many, many people have raised legitimate concerns about the EIC. But it has nothing to do with the core structure of our tax code or progressive taxation. The EIC is one of those special tax exemptions that our code is peppered with. It's not something fundamental to our tax system.
posted by saulgoodman at 11:44 AM on August 16, 2011

(and what madcaptenor said.)
posted by saulgoodman at 11:45 AM on August 16, 2011

Huh. I don't feel "superior" to my neighbors when I help out. I feel relieved that I can provide something to my community. I qualify as one of the 'poor' and I give on a regular basis. Maybe I'm the bottom of the totem pole.

We're all in this sinking boat together. Even if the hole's not under your seat, you still need to bail water.
posted by _paegan_ at 11:47 AM on August 16, 2011 [1 favorite]

"I tried to explain that improving the lot of those worse off does not harm them directly or indirectly, but they just saw other people getting free money and them getting nothing."

The beautiful part about giving poor people "free money" is that they'll spend it.

The best thing we could do for states, especially those like California which have a high sales tax rate, is cut the sales tax (or come up with a rebate system, progressively set to income, though that's likely to be more trouble than it's worth) and shift the tax burden to income (or better, wealth).

For California, that would be like an instant 10 percent off sale on everything. It'd kick up demand and simultaneously allow greater influx of money into state coffers, likely with lower total rates of taxation (depending on how the income taxes were adjusted), simply through the circulation of money (no sales tax, but businesses pay taxes on profits, etc.).

Sales tax is often popular because it's seen as fair, but in that case "fairness" is something that gets in the way of desired economic outcomes.
posted by klangklangston at 11:47 AM on August 16, 2011

saulgoodman: the EIC may not be a "fundamental part" of the tax code, but something like twenty million households claim it, so it's not exactly some minor thing buried deep in the fine print.
posted by madcaptenor at 11:49 AM on August 16, 2011

This was a very, very poorly-conceived experiment, although it seems to confirm something many people already believe, that people in America will tolerate almost any socio-economic betrayals by largely Republican politicians as long as they can look down their noses at someone poorer than they.

In my experience, it doesn't matter if the people being looked down upon are poorer than the lookers, although they may be -- what matters more is that they can be morally condemned, often in ways interlocking with privilege, e.g., controlling images like "The Welfare Queen" which even poor white people will bandy about.

I think the very wealthiest Americans would also espouse the idea that they shouldn't have to pay taxes that would help the poorest people. The operating ideology here takes slightly different forms across economic classes, but it's all been ginned up by the wealthy and their lackeys, and it all boils down to keeping everything they have, giving back as little as possible, and relentlessly accumulating more, no matter the cost to society at large.
posted by clockzero at 11:54 AM on August 16, 2011

Quite obviously, we need to ween humankind off this money stuff. It seems to seriously warp their behavior.
posted by Thorzdad at 11:54 AM on August 16, 2011 [8 favorites]

This is not all that surprising. Social welfare programs are framed as a kind of charity, which entails two things: first, social programs are believed to be superhuman acts of generosity by the rich or middle class - this creates resentment over unfairness that "We're expected to be more moral, but the poor are allowed to get away with laziness/cheating/poor parenting/whatever!" Second, this framing implies that what the rich give really does belong to them, it still permits the fiction that the free market is a neutral, natural entity something like a farm the rewards hard work and punishes idleness and when catastrophe falls (drought, pests) it tends to fall on everyone at once. Whatever you can grow out of the ground belongs to you, and giving it to someone else is giving up your property. Why would the poor, who have almost nothing, support the idea of generously giving away what belongs to you? They rightfully have no time or patience for such sentimentality.

Most people agree that you deserve justice, whether you work hard or not. We pay for a court system and most people support the idea of public defenders so that people who can't afford representation still have some measure of protection. No-one thinks of this as charity, it is your right as a citizen. The problem today is that the notion of economic justice is practically absent. This is what you get when you drop the Marxist division between the working class that earns money by selling their labor, and the capitalists, who sit on big piles of money watching them turn into even larger piles of money. The notion that society ought to be organized for the benefit of the people does not exist, instead we have people organized for the benefit of the market.
posted by AlsoMike at 12:00 PM on August 16, 2011 [5 favorites]

This was a very, very poorly-conceived experiment

Why? I'm asking seriously. It's not at all obvious to me that this a poorly-conceived experiment, as far as social psychology experiments go.
posted by treepour at 12:04 PM on August 16, 2011 [2 favorites]

I think it's important to de-normalize this ostensibly natural aversion to taxation which, the article seems to imply, is, like, y'know, just how people are. It's (at least, in large part) a result of billions of dollars of propaganda put out over decades by corporations and overtly political religious organizations that has largely succeeded in removing every impediment to uncontrolled income disparities, enabling widespread regulatory capture in finance and elsewhere, stagnant wages, and a dozen other fiscal problems that could be solved if the foxes weren't guarding the henhouse.
posted by clockzero at 12:04 PM on August 16, 2011

Yes because 'students' exemplify every impulse of 'the poor'.

You know, there have been a lot of posts to Metafilter lately that attack some popular liberal beliefs. For example, Why Can’t More Poor People Escape Poverty? and better access to supermarkets doesn't improve people's diets.

In every case, half of the posts have nitpicked about small issues with the experiments or even attacked accepted models of social and economic experiments.

I'm calling bullshit on that. It's bullshit when the conservatives do it, and it's bullshit when liberals do the same with experiments that don't fit their beliefs. If there is scientific evidence that our beliefs are wrong, we should change those beliefs. It doesn't mean that we need to give up on our liberal policies. It just means that implementing those may be more difficult than we thought.

What I'm saying is that some of these results go against the liberal concepts of self-control, toleration and the goodness of humanity, so of course many on this site may brush them off.

For a great example with an entirely different psychological effect, consider this ask mefi question: Is it true that the first thing women check out on a guy are his glutes?

For the first half of the answers, almost everyone emphatically claims "No!". But then a poster comments that he used to work on eye tracking software for store displays, and the phenomenon was so common they used to use it to calibrate machines.

Acknowledging that we may engage in things that we consider distasteful is necessary, because then we can better use these psychological principles to design incentive systems that benefit everyone.
posted by formless at 12:07 PM on August 16, 2011 [9 favorites]

Heh, I was just reading this today: Political Conservatism as Motivated Social Cognition

Social dominance theory holds that attitudes pertaining to social dominance are determined jointly by biology and socialization and that there are important individual differences among people with regard to SDO (e.g., Pratto et al., 1994; Sidanius & Pratto, 1999). Items from the SDO Scale tap agreement or disagreement with statements such as the following: “Some people are just more worthy than others”; “It is not a problem if some people have more of a chance in life”; and “This country would be better off if we cared less about how equal all people are.” Thus, the SDO Scale measures individual differences with respect to the motivated tendency to preserve the dominance of high-status groups such as men (rather than women), Whites (rather than Blacks and other ethnic minorities), and upper-class elites (rather than the working class). Jost and Thompson (2000) demonstrated that the SDO Scale is composed of two correlated factors or subscales, namely the desire for group-based dominance and opposition to equality. Although social dominance motives are said to be universal (e.g., Sidanius & Pratto, 1993), their strength differs considerably across groups and individuals (e.g., Jost & Thompson, 2000; Pratto, 1999; Pratto et al., 1994).
Correlations between SDO scores and those of conventional measures of political and economic conservatism average approximately .30 in a variety of national and cultural contexts (Altemeyer, 1998; Pratto, 1999; Pratto et al., 1994; Sidanius et al., 1996; Whitley & Lee, 2000). Scores on the scale have been found also to correlate reliably with identification with the Republican party, nationalism, cultural elitism, anti-Black racism, sexism, RWA, and the belief in a just world (Altemeyer, 1998; Pratto et al., 1994).
The scale predicts policy attitudes that are supportive of “law and order,” military spending, and capital punishment, as well as attitudes that are unsupportive of women’s rights, racial equality, affirmative action, gay and lesbian rights, and environmental action (see Jost & Thompson, 2000; Pratto et al., 1994). It is of theoretical interest that, in addition to the notion of legitimizing the status quo, social dominance theory also implies the notion that increasing the degree of hierarchy or group dominance is a motivationally appealing ideological goal at least under some circumstances, such as when one belongs to a high-status group.
posted by heatvision at 12:08 PM on August 16, 2011 [1 favorite]

For California, that would be like an instant 10 percent off sale on everything. It'd kick up demand

Hmm. There's an implicit assumption in here that I see quite a bit: That increasing consumption is always a Good Thing. I can kind of understand it. More spending = more money to businesses! More money to businesses = more jobs! More jobs = yay!

But the thing is, the people getting those jobs are also the people doing the increased consumption. So at least some of those new earnings is spent right away. And these days, when products aren't built to last and much of what we buy ends up on a trash heap within a few years, increased consumption mostly seems wasteful to me.

When I look at it from a (super oversimplified) high-level system perspective, I see us shipping boatfuls of money to China in return for boatfuls of cheap stuff. And then I see us shipping boatfuls of trash to China as well as boatfuls of money to pay for the processing of that trash. It's net loss for us, while they make money coming and going. And if we add in the fact that China was the one who gave us the original boatfuls of money on loan because we're out of cash, and they're expecting us to send them back eventually along with some additional ones for interest -- except we've already sent them back to pay for all the junk we're buying -- and no one's sending us other boatfuls of money we could use because we don't make things anymore -- well...

Taking the optimistic perspective that we're not completely screwed already, I think the #1 thing we need to do is stop all the waste. I'm not sure how we can expect to do ok when we repeatedly throw our wealth into the garbage!
posted by mantecol at 12:12 PM on August 16, 2011 [1 favorite]

> It's amazing to me how economists manage to put out study after study like this, each purporting to show the uselessness of liberal goals [...]

I strongly disagree. Observing that a particular method may be doomed to failure does not mean one considers the goal (such as reduction of absolute poverty) to be useless.

> I don't know that we can assume there's a handedness bias that you can eradicate.

Neither do I. That's why I propose putting people in a circle and getting them to pass balls around without any concept of gain/loss, to find out whether or not handedness needs to be controlled for.

> I noticed how strong this was when BC last raised its minimum wage; the people most violently opposed were those who were already making a couple bucks above the minimum wage (11-13/hr). The argument I repeatedly heard was, it wasn't fair that people making less than them got a "free raise" and they didn't. I tried to explain that improving the lot of those worse off does not harm them directly or indirectly, but they just saw other people getting free money and them getting nothing.

They think that because they assume a zero-sum economy; if lower-paid workers are now getting a higher minimum wage, then merchants are going to raise their prices to what the market will bear and those earning slightly above the minimum wage are going to experience higher prices without a corresponding increase in their incomes. You can't mandate wages at higher levels of pay without getting into every employment relationship, so now you have the situation of two groups of people doing the same amount of work as before but one group is suddenly getting better pay while the other group is getting the same amount.

Now, most economies are not zero-sum because they're fairly open, so when the minimum wage goes up so does the Keynesian multiplier, and the economy is likely to grow overall, increasing wages for the non-minimum wage workers as well. But that's not all that obvious. It would be easier to sell a hike in the minimum wage with a corresponding cut in the lowest tax rate or an increase in tax-free allowances.

> The beautiful part about giving poor people "free money" is that they'll spend it.

Just yesterday I came across an interesting paper observing that among lottery winners, those who won substantial amounts ($50-150k) were just as likely to be bankrupt after 5 years, and over similar amounts, as those who won smaller sums. This may not seem directly relevant, but has large implications for theories of how transfer payments should work.

The best thing we could do for states, especially those like California which have a high sales tax rate, is cut the sales tax (or come up with a rebate system, progressively set to income, though that's likely to be more trouble than it's worth) and shift the tax burden to income (or better, wealth).

I'm not sure about that. Sales taxes are regressive, in theory, but on the other hand everything in Europe is subject to a VAT of somewhere around 20%. Does that mean the socially good effects of Europe's higher marginal tax rates are undermined by the higher sales taxes? Admittedly, many necessities are exempted from VAT, such as unprepared food, children's clothing and so forth. But then that's partially true here in CA as well.

I personally think part of the problem in the US is that there are too many taxes. There's federal income tax, state income tax, possibly local income tax, state sales taxes, possibly local sales taxes, property taxes, sin taxes, and then various other things like estate taxes or capital gains taxes. In European countries tax rates are often higher but people don't have to do their own tax returns unless they're self-employed, and retailers are required to display prices inclusive of tax, so the price you see on the shelf or on the sticker is the amount you will pay at the register. Although taxes are lower in the US, so much work goes into calculating and differentiating them that it creates a perception of being much higher. I don't mind paying tax (as a sum of money that goes to government), but I really hate dealing with taxes (as in the administrative burden of calculating what I owe every time I purchase something in a store or fill out my tax forms). I'm fine with paying for local services like garbage pickup, streetlights, and so on, but I hate the idea of property taxes (because the value of a home has little to do with the amount of services consumed, and people who bought their home a long time ago and are much better off may pay much lower property taxes while consuming exactly the same services).
posted by anigbrowl at 12:14 PM on August 16, 2011

So, the four possible outcomes for the next-to-last place people:

A == last place, $1
B == next-to-last place, $2
C == two away from last place, $3

A must push money upwards, so B will have at least $4 no matter what. B can go down or up, C can go down or up, and D can go down or up. So B will have $4 or $6, C will have $3, $5 or $7, and A will have $1 or $3 (we only care about D's contribution for the sake of this comment.)

So A will always be last, no matter what. There is literally nothing B can do to change that, so A is not a threat to B's position under any circumstances. If B pushes money upward, their chance of remaining in next-to-last place is one in 50/50, depending on the altruism of C. If B pushes money downward, their chance of remaining in next-to-last place is 50/50, depending on the altruism of D.

Ultimately, there is absolutely nothing that B (our next-to-last place person) can do to impact the outcome of their own position directly. They can certainly pass the money downward, then hope for D to be altruistic and pass their money downward. Or they can pass the money upward, then hope that C appreciates it and elects to act altruistically. In theory the rational choice, then, is to pass the money upwards.

However, this choice is flawed, because it requires C to be altruistic to their own detriment, as they will lose a position in the process. Plus C is a rational actor in theory, has done the same math as B, and is in exactly the same position, therefore likely to push the money up.

If anything is coming out of this, then, it is simply that people in the next-to-last position are smart enough to realize that the person below them is no threat to their position in the order of things, and so they're willing to try the one option at their disposal -- trying to provoke altruism to their benefit. What I really want to know is: since the people one level up (C in my example) CAN be threatened by the next-to-last folks (B in my example), what did THEY do more often? If they moved the money downward more often than not, then the given assumption is flawed, because this would suggest that folks near the bottom place altruism ahead of personal gain potential, AKA the opposite of the stated conclusion in this article.

unless i'm missing something
posted by davejay at 12:18 PM on August 16, 2011 [2 favorites]

This reminds me of a great bit in the documentary The Trap where John Nash talks about the egoistic, distrustful models he created and basically went, "Uh, I was a paranoid schizophrenic who thought everybody was out to get me at the time."

Great Documentary. It also pointed out that they fudged the results of their experiments because they were obsessed with proving that people will only act in their self-interest. It turns out this behaviour is common in only two sections of society.

Economists and Psychopaths.
posted by fullerine at 12:19 PM on August 16, 2011 [6 favorites]

So, the ~~four~~ possible outcomes for the next-to-last place people:

FTFM
posted by davejay at 12:19 PM on August 16, 2011

But the thing is, the people getting those jobs are also the people doing the increased consumption. So at least some of those new earnings is spent right away.

Yes, but if those people with the new jobs are buying things they need rather than going without as they are when they don't have jobs, this is definitely a good thing.

And these days, when products aren't built to last and much of what we buy ends up on a trash heap within a few years, increased consumption mostly seems wasteful to me.

Quality goods that are built to last cost more money. Someone without a job may buy a pair of crappy (but cheap) Wal-Mart shoes that will wear out in a few months. Someone with a job might be able to afford a decent pair of shoes that will last them a few years.
posted by Dojie at 12:21 PM on August 16, 2011

Oh, and does it go without saying that the best possible solution would be for everyone to pass the money downward, so that everyone moves up in lock-step? Rising tide lifting all boats, and all that.
posted by davejay at 12:21 PM on August 16, 2011

spciynuts, these types of experiments are designed to be done hundreds of times to get at the root of behavior, not to form a simulation of real-world events. The experiment could've been done with any sort of person, using any sort of reward, the $1 is symbolic.

Well right, it's symbolic. But real poverty isn't symbolic it's very, very tangible. I doubt that 'students' would be willing to suffer to prevent other people from suffering less. Just because someone did a study on something doesn't really mean it applies to the real world the way they applied it. It might apply to the middle class, but who knows.
posted by delmoi at 12:22 PM on August 16, 2011

"I'm not sure about that. Sales taxes are regressive, in theory, but on the other hand everything in Europe is subject to a VAT of somewhere around 20%. Does that mean the socially good effects of Europe's higher marginal tax rates are undermined by the higher sales taxes? Admittedly, many necessities are exempted from VAT, such as unprepared food, children's clothing and so forth. But then that's partially true here in CA as well."

Two things:

One, one of the biggest problems we're facing right now in our economy is an excess of production, without the demand to match it. Sales taxes inherently act to curb demand. They can be handy when inflation is out of control, but there's no real risk of that any time soon, no matter what the gold bugs tell you.

Two, yes, honestly, it does mean that the VAT is often regressive, though the implementation matters. But it's inarguably less progressive than income tax done through brackets (or whatever they call them elsewhere).
posted by klangklangston at 12:24 PM on August 16, 2011

Quite obviously, we need to ween humankind off this money stuff. It seems to seriously warp their behavior.

Not in the least. Money is just a proxy for scarcity, and economics studies the administration of scarce resources. There could easily be enough food/shelter/basic necessities for everyone, but most humans want more than the bare minimum because we are conscious beings with imagination. Animals are happy with food, a dry place to sleep, and companionship, but animals don't really have an intellectual life - whereas humans are very interested in clothes, music, books, technology and so on. Often as a means to the end of reproduction, true, but for good or ill we are imaginative creatures and that genie can't be put back in the bottle. Until we either invent benevolent machines that are much smarter than us or discover sources of infinite free (and safe) energy, we are always going to have questions of how to allocate scarce resources, because there is not enough stuff for all that we want to do with it.

Bear in mind that in economics 'scarcity' and 'shortage' are two different things. Air is so abundant as to be free, but scarce in the sense that it can easily be polluted and we often impose a cost on anyone doing so.
posted by anigbrowl at 12:28 PM on August 16, 2011

Quality goods that are built to last cost more money. Someone without a job may buy a pair of crappy (but cheap) Wal-Mart shoes that will wear out in a few months. Someone with a job might be able to afford a decent pair of shoes that will last them a few years.

As someone who has just started earning real money and can afford to start buying high-quality products, I'm finding that the products with large price tags are of only marginally increased quality compared with the Wal-Mart stuff. Maybe it's a bit more flashy, but it wears out just as quickly In order to get the high quality stuff, you have to pay insanely high prices for products imported from Europe. I'd love to start investing in some stuff that will last me decades, but it's all junk as far as the eye can see. It's really frustrating, actually. Am I just doing it wrong?
posted by mantecol at 12:30 PM on August 16, 2011 [3 favorites]

One, one of the biggest problems we're facing right now in our economy is an excess of production, without the demand to match it. Sales taxes inherently act to curb demand. They can be handy when inflation is out of control, but there's no real risk of that any time soon, no matter what the gold bugs tell you.

Uh what The biggest problem in our economy is definitely not excess production, it's lack of demand. Cutting production would mean even fewer jobs.
posted by delmoi at 12:31 PM on August 16, 2011

George_Spiggott - you can start here: A Signaling Explanation For Charity (pdf/jstor), but there's other literature if you want to look for it.
posted by bashos_frog at 12:31 PM on August 16, 2011

> Many, many people have raised legitimate concerns about the EIC. But it has nothing to do
> with the core structure of our tax code or progressive taxation. The EIC is one of those
> special tax exemptions that our code is peppered with. It's not something fundamental to
> our tax system.
> posted by saulgoodman at 2:44 PM on August 16 [+] [!]

I see your point, saul, but it's hard not to think that all those hundreds of thousands of pages of exceptions and special situations are the tax code, overwhelming the relatively simple schedule of percentages that's buried down underneath them somewhere (or so they tell me.) It's not entirely unfair to say that the US tax code fundamentally is the haystack of exceptions and special situations.

As for not having to claim the EIC, I didn't know it existed. The way I learned about it was: a couple of months after filing as usual the first year I ever reported a dependent child, I received one of those scary window envelopes from the IRS, and inside was... OMG a little check! And an explanatory slip, "We calculated your Earned Income Tax Credit for you." So while it may not be compulsory the IRS thinks you should be doing it, to the extent of recalculating your tax return and sending you the credit you didn't claim.
posted by jfuller at 12:40 PM on August 16, 2011 [3 favorites]

Trivial point, but the asnider described the authors as "Economists from the National Bureau of Economic Research" sounds as though the authors are employed economists at the NBER - like "from the Brookings Institute" or "from the Federal Reserve". But the authors are all either professors or doctoral students (see below):

- Ilyana Kuziemko (Princeton, Economics Dept, Assistant Professor),
- Ryan W. Buell (Harvard Business School, Technology and Operations Management, Doctoral candidate),
- Taly Reich (Stanford, Marketing Dept, Doctoral student),
- Michael I. Norton (Harvard Marketing Dept, Associate Professor).

I'm not sure if all four of them are NBER research fellows or not, but this paper is in the NBER working paper series - an unpublished depository of working papers. Probably the most prestigious working paper series there is. But a few times I've seen journalists report economists' affiliation with it as though it employs the economist, which is not I don't think exactly the way to think about it. It's an invitation-only association of economists, and the benefits of membership are varied, but everyone is usually "from" somewhere else.

Also, fwiw, the working paper series is not peer reviewed. So this is an unpublished piece at this point. Probably just pointing out the obvious, but I saw someone at the NYT write a few months back "blah and blah article published by the NBER", and they referred to the working paper series. The NBER working paper series isn't a journal, and it's not peer reviewed. Results from the papers will inevitably change after going through peer review, so word of caution in that sense.
posted by scunning at 12:42 PM on August 16, 2011 [2 favorites]

Thanks, bashos_frog... it's interesting that the actual examples mentioned in that study are nearly all alumni contributions to expensive private universities. These are A) not the domain of the poor by the wildest stretch of the imagination, and B) nearly always published in alumni newsletters or commemorated in other way. Perhaps down in the details there is coverage of, say, church-based giving, sticking cash in the salvation army or humane society bucket or other things more in the line of where the poor would contribute, but it's hard to spot in a superficial reading.

there's other literature if you want to look for it.

I don't especially. I didn't make the assertion.
posted by George_Spiggott at 12:48 PM on August 16, 2011

As someone who has just started earning real money and can afford to start buying high-quality products, I'm finding that the products with large price tags are of only marginally increased quality compared with the Wal-Mart stuff. Maybe it's a bit more flashy, but it wears out just as quickly In order to get the high quality stuff, you have to pay insanely high prices for products imported from Europe. I'd love to start investing in some stuff that will last me decades, but it's all junk as far as the eye can see. It's really frustrating, actually. Am I just doing it wrong?

Yeah, the Sam Vimes "Boots" Theory of Economics kind of breaks down when everything is mass-produced overseas on razor-thin margins with the lowest possible production quality. I went retail shopping for the first time in ages the other day and was aghast at how bad the quality was for the prices being charged. $50 for an unlined cotton skirt with threads hanging off the crooked hem? No thanks, I'll keep shopping at the thrift store and the vintage store.
posted by nonasuch at 12:56 PM on August 16, 2011 [5 favorites]

Oh, and does it go without saying that the best possible solution would be for everyone to pass the money downward, so that everyone moves up in lock-step? Rising tide lifting all boats, and all that.

It depends on how much inflation you expect, I suppose.

Consider A: $1, B: $2 C:$3 D:$4 and they own 10%, 20% 30% and 40% of the 'wealth' in the experiment, respectively. Now suppose they each get $2 (reflecting 80% 'economic growth'), and pass it down (except for A, who must pass it up), for A:$3 B:$6 C:$5 D:$4 for a distribution of approximately 17%, 33%, 28% and 22%. Hmm, that doesn't seem right.

OK, suppose everyone starts as above and gets $2 and just keeps it. Now their absolute gains are 200%, 100%, 66% and 50%, and the distribution is 17%, 22%, 28% and 33%. This seems fair, everyone has moved up in absolute terms; but the gains are very unevenly distributed. Recall that the overall 'growth' is 80%; A has seen a 70% improvement in spending power, B has improved by 10%, C has lost ~7% and D has seen a 17% decline in relative spending power. Everyone has gotten closer together, but the problem (from B's standpoint) is that A has gotten much closer to B than B has gotten closer to C, just as D has seen a greater decline than C has.

The root of dissatisfaction with redistribution is that people all have the same amount of time so they feel that their accumulated effort is increasing in a linear fashion, but that everyone except those at the bottom of the pile are facing a situation of diminishing returns. Within an individual tax bracket, this a rational position to hold: people are getting to keep less of each dollar they make at the margin. Where they are mistaken is in the belief they are putting in the same amount of work to get that dollar. A poor person almost always has to work much harder to earn $1 than a wealthy person; this is certainly true in terms of physical effort, although when you add education to the picture the belief of many is that they have borrowed against their native ability at a certain cost to buy more education, and thus their current earnings are reflective of previous opportunity costs, whereas a lower paid worker has opted to maximize their economic utility at all previous times instead of using debt (in time or $ terms) to compound it for future returns.

Naturally, this would only be true in a society where everyone started from the same point and some opted to continue their education while others opted to go straight into the workforce and spend their evenings down at the pub instead of in the library. I'm not saying that the above is how the world actually works, but it's how people many people perceive themselves in relation to it.

Two, yes, honestly, it does mean that the VAT is often regressive

I know that. What I'm wondering about is why it is so popular and so high in Europe.
posted by anigbrowl at 1:11 PM on August 16, 2011

As someone who has just started earning real money and can afford to start buying high-quality products, I'm finding that the products with large price tags are of only marginally increased quality compared with the Wal-Mart stuff. Maybe it's a bit more flashy, but it wears out just as quickly In order to get the high quality stuff, you have to pay insanely high prices for products imported from Europe. I'd love to start investing in some stuff that will last me decades, but it's all junk as far as the eye can see. It's really frustrating, actually. Am I just doing it wrong?

I'm someone who has just started not being able to afford high-quality products. Sticking with the shoe example - I recently wore out my much-loved several years-old pair of sandals and replaced them with a pair of Wal-Mart sandals. They didn't even last one summer before the soles came unglued. And the top started wearing through and looking shabby in a matter of weeks. I see the same issues with my kids' clothes. The good stuff gets passed down to the next kid. The Wal-Mart stuff doesn't last long enough to be outgrown. Quality may have gone downhill across the board, but the cheap stuff at the bottom is complete garbage. Not that this has anything at all to do with the FPP.
posted by Dojie at 1:13 PM on August 16, 2011

Why do we have to have tax brackets, anyway? Why does the amount of tax I owe have to be a piecewise linear function of my taxable income?
posted by madcaptenor at 1:15 PM on August 16, 2011 [3 favorites]

I would bet that we still have a ways to fall before the majority of poll-going voters decide enough is enough.

Exactly what I've been saying for the past two years. Brains are wired for status. The conundrum here is that these impulses are not just local (as in geographically regional, as in America) - they apply to all humans. Just imagine the implications of this finding for international relations (helping other nations), etc.
posted by Vibrissae at 1:18 PM on August 16, 2011

spicynuts : Yes because 'students' exemplify every impulse of 'the poor'.

1) You don't remember college life very well, do you? When a clean-looking pizza box placed on top of a garbage can counted as fair game... When "housing" meant living like H1Bs, packed six+ to a 200sqft apartment... When deciding whether to buy or photocopy a course's books meant a potential upgrade to your diet that semester (from "pizza box on top of a garbage can"), to "taco bell").

2) Every experimental psych class includes, at least once, a great big self-debasing disclaimer - "This is the science of how 18-22 year old middle class females behave".
posted by pla at 1:20 PM on August 16, 2011 [1 favorite]

"This is the science of how 18-22 year old middle class females behave".

Why "females"?
posted by madcaptenor at 1:23 PM on August 16, 2011

Why does the amount of tax I owe have to be a piecewise linear function of my taxable income?

Because money is basically worth more as it aggregates. Because $50 dollars can mean life or death to someone with nothing else, but an extra $50 bucks doesn't mean anything to someone with $1,000,000.00. The marginal utility of money decreases as it accumulates.
posted by saulgoodman at 1:31 PM on August 16, 2011 [1 favorite]

Erm, well actually, I should say money's worth less on a per unit basis as it accumulates, so taking 50 dollars, for example, from someone who already has a million others doesn't deprive them of as much spending power and value as taking 50 dollars from someone who only has 50 dollars.
posted by saulgoodman at 1:33 PM on August 16, 2011

madcaptenor : Why do we have to have tax brackets, anyway? Why does the amount of tax I owe have to be a piecewise linear function of my taxable income?

Because most people have trouble looking up those linear values in the frickin' precalculated tables in the instruction book. You seriously expect them to handle a quadratic or exponential function?

And if you make it discontinuous, they you'll have cutoff points where people "lose" money by making slightly more.

Why "females"?

Peek in on any undergrad psych class and you'll have your answer. ;)

In the ones I took, 90% female meant "more males than usual" (oddly enough, the exact opposite situation of CS classes)
posted by pla at 1:35 PM on August 16, 2011

You seriously expect them to handle a quadratic or exponential function?

It wouldn't be any harder than what we have now; they're just looking it up in a table anyway.
posted by madcaptenor at 1:37 PM on August 16, 2011 [1 favorite]

> a pair of Wal-Mart sandals. They didn't even last one summer before the soles came
> unglued. And the top started wearing through and looking shabby in a matter of weeks.

For the coming-off soles, "Plumber's Goop" from Home Depot etc. Clamp overnight, or just put a concrete block on top of it. For ratty-looking tops, trim the loose threads, seal them from further unravelling with Goop, spray the whole thing with dark brown spray paint. The paint is good for a month or so, the Goop is good for a second season. Neatness counts. --j(heloise)fuller
posted by jfuller at 1:38 PM on August 16, 2011 [3 favorites]

As someone who has just started earning real money and can afford to start buying high-quality products, I'm finding that the products with large price tags are of only marginally increased quality compared with the Wal-Mart stuff. (..) It's really frustrating, actually. Am I just doing it wrong?

Yes, but it often takes years to learn this. Here's the trick: buy the insanely expensive stuff, but only when it goes on sale. The retail price of things above minimum quality reflects an impatience premium. Wealthy people signal income by buying some things they know to be overpriced, as a demonstration that their time is worth more than this impatience premium. Your task is to switch from buying what you need (but having to replace it frequently) to identifying what things will have the longest replacement cycle and then using the amount of time that you estimate you will save to do research and seek out buying opportunities.

So if you're buying clothes, say, you join up with a few of those discount websites and watch them for a while to see how prices move. Merchants and producers dispose of surplus stock through a discount broker because they don't want to reveal their wholesale prices - that would impede their ability to make prices in future. You look to find out where the discounts are, but allocate your time towards getting discounts on good things like a well-made pair of shoes or a suit or a piece of furniture that you anticipate using for a long time, and which will thus deliver better - often much better - value over its lifetime than a cheaper, more fashionable item. Half of that is knowing what to buy, and the other half is knowing where and when to buy it.

Finding out what to buy is surprisingly easy. Dress up when you go shopping (for anything) and retailers will show you what they think you can afford that will give them the best margin. The retailer will flatter you a lot in hopes of getting money, your job is to hide your preferences from the retailer (just as the retailer is hiding the wholesale price from you). then you go to outlets or discount websites and look at how far prices can be driven down - even if you miss out on a deal, the price information is still useful, because it helps you to infer what the wholesale price is. Then you use that information to either anticipate the next pricing cycle or to inform your haggling with a retailer.

Don't feel guilty about this; retailers mark discretionary purchases up a lot, and even if you don't buy, your presence in their store as a person of seeming wealth and taste is a free advertisement for the retailer, because it encourages other people to spend money.

tl;dr do not pay retail price except when shopping for commodity goods.
posted by anigbrowl at 1:39 PM on August 16, 2011 [11 favorites]

Although I suppose transparency in the tax system is valuable: if you're in the 25 percent tax bracket, for example, then you know that for every extra dollar you make you'd get 75 cents more to take home. (I'm ignoring the fact that the federal income tax is not the only tax.) If tax were some more complicated function of income you'd have to know calculus to do those computations.
posted by madcaptenor at 1:41 PM on August 16, 2011

"Uh what The biggest problem in our economy is definitely not excess production, it's lack of demand. Cutting production would mean even fewer jobs."

Lack of demand = excess production/supply. If you read what I wrote, you'd notice that I didn't say that we should cut production, but rather that we should strive to increase demand.

"I know that. What I'm wondering about is why it is so popular and so high in Europe."

At least with gas, I remember remarking on the high prices while in Paris, and being told that people understood that they got health care for it. There's more of a perception of getting something back from the government in a lot of Europe, though I hasten to add that this is a generalization from anecdote, not a strongly held position.
posted by klangklangston at 1:53 PM on August 16, 2011

My cousin a fireman for 20 plus years in the SF bay area, son of a retired SF policeman, believes the solution to our woes is to cut pensions.

Not his mind you because his job is important.
posted by pianomover at 1:54 PM on August 16, 2011 [1 favorite]

pianomover : Not his mind you because his job is important.

Well, he has it half right...
posted by pla at 1:59 PM on August 16, 2011 [1 favorite]

klangklangston, I think the feeling that government does a good job of providing is a widespread one in Europe, although I always thought of healthcare as being paid for by higher rates of income tax rather than VAT in particular. I'm OK with high income taxes or high VAT, but both at once is overdoing it.

My cousin a fireman for 20 plus years in the SF bay area, son of a retired SF policeman, believes the solution to our woes is to cut pensions. Not his mind you because his job is important.

I'm guessing he's also opposed to calculating the pension from anything other than the final year salary, which strangely requires an unusually high degree of overtime. This is why we don't have funding to recruit more junior and rookie cops and our city budget looks like the financial version of Event Horizon.
posted by anigbrowl at 2:19 PM on August 16, 2011

I can see the logic in this, actually. Say I'm lower lower class, but have a steady job, and can barely make my bills one month with a tiny bit left over. I have two sisters who could use a little help, and I have enough to throw in the kitty for just one of them. Would I choose the one who is constant financial crisis, who I know will just blow it on menthols, and will never have the possibility to help me when I need help, or the one who is usually on top of things (moreso than me) but just uncharacteristically fell behind, and will be there for me in the future? It's also like charities. I'd rather give my meager earnings to one who has more of a chance to have success with my donation, than to give it to a fly-by-night operation that needs my money just to pay overhead.
posted by From the Fortress at 2:22 PM on August 16, 2011

Region and culture plays such a part in this aspect of "community as insurance", afaik.

I'd done fieldwork looking at how those on irregular income streams at the 'bottom of the pyramid' managed their household expenses in rural Philipines, India and (indirectly via a student) in rural Malawi. Every other aspect was consistent across continent/country except how the 'cooperative economy' or community aspects manifested themselves. And yes this could be said to be anecdata but its based on observing users/qualitative approach rather than quant. Ping me for doc if cite needed

Now on the relative scale of being 'well off' or cushioned against shocks, the Indian village was the wealthiest followed by the Filipinos and finally the Malawian's were closest to the edge.

Yet the sense of cooperation and community - particularly in terms of availability and access to cash money - was most tightly knit in Malawi.

An example is a daily wage worker who earned money breaking rocks with a hammer for construction. He hurt his hand and his friends who did the same work helped him out with money for food etc for upto 4 or 5 days (before their own slush funds ran out) to support his family of wife and two kids. Just straight out giving the money to the person most in need at that time. A little higher up in the food chain people with a bit to spare or more than one family member earning were usually part of an informal savings circle where members put money in a community pot with the total either going one member each time period by order or lottery. Cashless transactions were also very common - I recall that a Nokia with radio was worth four goats (I wonder if the iPHone would have been ten?)

In the Indian community, while cash was accessible in emergencies for those in the community (think going to the person you know has some cash or just got paid or whatever) it was traditionally made available as an interest bearing loan rather than a gift or simple loan. Even if it was your brother the standard repayment was 2% a month. Cashless transactions were common but far more sophisticated than simple barter.

Now the most interesting was the Filipino community - cooperative sharing or support tended to be only time or equipment or labour but rarely cash money, not even available for interest. It struck me how similar the thinking was to much of what has been said here in this thread - was this due to the high proportion of people in rural region being dependent on remittences from abroad (the global Filipino labour diaspora) and how this had impact on the local society both good and bad? Status now derived from the status of the foreign job held by the relative and those who had no flow of external income to support the local income stream via farming/shop keeping/odd jobs etc were pitied.

I didn't take a closer look at why this should be so and I wish the grant had allowed that but its something I still wonder about till this day more so since in almost every other way the rural communities in each geography were so similar in their spending and saving and managing habits.
posted by infini at 3:00 PM on August 16, 2011 [3 favorites]

I'm working on this whole "evil chimp" hypothesis, where basically people feel best when there's someone out there that feels like shit because of them. This news may fit into that concept.
posted by medea42 at 3:25 PM on August 16, 2011 [1 favorite]

> Lack of demand = excess production/supply. If you read what I wrote, you'd notice that I didn't say that we should
> cut production, but rather that we should strive to increase demand.

The Consumption Economy Is Dying—Let it Die
posted by jfuller at 3:29 PM on August 16, 2011

It strikes me that a lot of this also has to do with the 'awareness' and knowledge of being in a social environment stratified by income. It is correct that nobody wants to be at the 'bottom' but first you have to be aware of the fact that there is a) a bottom and b) you're near it vis a vis the others higher up in the food chain.

An interesting, if longish snippet from this research paper by Akay and Martinsson:

The observation that people are not only concerned with their own income but also with their own income relative to others has been discussed by scholars from Adam Smith to Karl Marx. Recent evidence from the subjective well-being literature, which utilizes subjective wellbeing (also referred to as “satisfaction with life” or “happiness”) as a proxy for utility, does show that the income of others affects our own subjective well-being (see, e.g., a summary of the literature in Clark et al. 2008). Another branch of the literature on “relative positions” has applied stated preference studies to explicitly test both for relative concerns on income as well as on other domains in life, such as days of vacation and value of a car, with the overall finding that people do have relative concerns (e.g., Alpizar et al. 2005; Johansson-Stenman et al. 2002; Solnick and Hemenway 1998). The implications of relative concerns are lowered utility from a unit of income as well as engagement in activities for the reason to increase one’s relative position, i.e., conspicuous consumption.
[...]
In other words, relative income is more important for subjective well-being among people in richer countries than in poorer countries. The empirical evidence supporting this observation on this issue stems from research in wealthier countries, where the empirical results show that relative income has a negative and significant impact on subjective well-being.
[...]
The objective of this paper is to test whether relative income matters for very poor people by using a novel data set collected in rural areas of northern Ethiopia in 2004–2005. Ethiopia was ranked in the top five poorest countries in the world, based on adjusted gross national purchasing power parity income per capita, and almost 40 percent of its households live below the poverty line (World Bank 2004).1 The overall results of this paper, based on different definitions of reference groups, suggest that the relative income does not affect subjective wellbeing among the very poor people in northern Ethiopia.

Given that the poorest segment of global society tend not to be heavily exposed to or influenced by mainstream consumer culture, I now wonder how much of this aspect has to do with advertising and consumer messaging?

One could correlate the style and approach of messaging in each region as closest to and furthest from the global mainstream (or American) norm.
posted by infini at 3:42 PM on August 16, 2011 [1 favorite]

There are very few situations where making more money causes you to have less money after taxes, despite what Joe the Plumber may have told us.

and

There are exactly none of those situations under our tax code. Ever. Period.

There are cases where you can make a lot of money on paper yet not in a way that benefits you, and have real taxes as a result. Consider this example that can happen to people at startups:

1) you get stock options as part of your employment. Hooray! Except you can't sell them because the company is public.

2) your company gets acquired for $$$. Hooray! Except you can't sell the options because the acquiring company isn't public, or the deal has a term that prevents employees from selling for half a year.

3) the IRS wants the taxes on the paper gain between steps (1) and (2) right now, this year. You may not have the cash. But you owe it anyway. It is possible for a non-management employee at a startup to have taxable income of $100k+ in such an event.

OK, so you borrow and pay off, or you stave the IRS off, or something, waiting to sell your stock and turn your paper gain into dollars.

4) The acquiring company's stock tanks, or the acquiring company is still private. Oops. You're still stuck with the bill.

Has happened to friends. Almost happened to me ... twice.
posted by zippy at 5:17 PM on August 16, 2011 [1 favorite]

1) ... isn't public ...
posted by zippy at 5:17 PM on August 16, 2011

Is the "free rider" problem a uniquely American concern, or do other societies share it?

This is from the Economist article and is often mentioned in economics books and articles:

"Broadly speaking, countries that are more ethnically and racially homogeneous are more comfortable with the state seeking to mitigate inequality by transferring resources from the richer to poorer people through the fiscal system."
posted by seesom at 5:32 PM on August 16, 2011 [3 favorites]

You must be living in a world where the tax burden is a continuous function of income. It was once true, in the US, that a small raise in income could put a taxpayer in the next tax bracket, for a net loss. It has not been true for quite a while.
posted by theora55 at 8:11 PM on August 16, 2011

Land of the Free, Home of the Poor: Financial gains over the last decade in the United States have been mostly made at the "tippy-top" of the economic food chain as more people fall out of the middle class. The top 20 percent of Americans now holds 84 percent of U.S. wealth, as Paul Solman found out as part of a Making Sen$e series on economic inequality.
posted by homunculus at 11:24 PM on August 16, 2011

I've always thought of the key concept in the opening post as 'Kicking the dog when you're down'.
posted by ZeusHumms at 12:00 AM on August 17, 2011

zippy : 1) you get stock options as part of your employment. Hooray! Except you can't sell them because the company is public.

Come again? You mean you can't sell the options themselves, or can't sell the company's stock after exercising the options? In the former, if you just let them expire, you have no tax implications. In the latter... Why can't you sell common stock in a publicly-traded company?

the IRS wants the taxes on the paper gain between steps (1) and (2) right now, this year. You may not have the cash. But you owe it anyway.

Although partially true in a small number of situations, a proper merger/acquisition conversion happens at parity (by law!), thus, no tax implications. You can find yourself on the hook in the present tax year for any cash-per-share granted by the acquiring company - But since that means they actually gave you cash, you can't fairly say you don't have the money to cover the tax implications (and, I would point out, you can claim that ultra-short-term gain at the long-term gains rate of 15%, if you qualify for the long term rate on the original company).
posted by pla at 3:51 AM on August 17, 2011 [1 favorite]

In a recent consumer study, 21 percent of individuals surveyed – including 38 percent of those with income below $25,000 – reported that winning the lottery was “the most practical strategy for accumulating several hundred thousand dollars” of wealth for their own retirement. In addition, 16 percent thought that winning the lottery was the best retirement strategy for all Americans, not just themselves (Consumer Federation of America and The Financial Planning Association, 2006). (source)
posted by blue_beetle at 5:54 AM on August 17, 2011

Idea for a sci-fi short story: in the near future, the income gap has increased to the degree that poor people are rioting in the streets, looting the stores owned by the rich. The government has to do something, but what?

A wise scientist invents an ingenious solution: people are assigned to formal social classes, and barred from all communication outside their class. Walls are built around the rich neighborhoods, while highways from the slums to the middle-class neighborhoods are barricaded. Even the TV channels and magazines in poor neighborhoods are barred from showing people who are richer than those living in the neighborhood, or advertising items its residents can't afford.

Thus, freed from desire, each man can go on with his life without ever contemplating those richer than himself. Within a few generations, families don't even remember if they're poor, middle-class, or rich; they're just about the same as the people who surround them. Are you poor if you don't even know it?
posted by miyabo at 6:23 AM on August 17, 2011 [2 favorites]

if they're poor, middle-class, or rich; they're just about the same as the people who surround them. Are you poor if you don't even know it? posted by miyabo

That sounds downright Ballardian and pretty neat actually, and you should read High Rise by J.G. Ballard about a luxury high rise arranged by economic standing and the attendant psychology both within and without the building. It's a masterpiece of regression, aggression and solipsism. Fiercely caustically so actually.

Anyhow your idea would also require dedicated news and entertainment (books, movies, even music I suppose) suited for each strata/class to maintain the illusion, and the production and administration of that would naturally produce a ruling class, that would need to oversee all those elements and that right there would be an authoritarian plutocracy and capital would still corrupt as it would make it's way to the highest echelons, unless capital was actually worthless, in which case...hmmm.

But I like it, especially if lets say one of the subjects from the lower classes began to get an inkling of what was going on and subverted, or tried to escape the strictures somehow. That would make for some fun.
posted by Skygazer at 8:29 AM on August 17, 2011

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