• September 20, 2014

Impoverished Thinking

Sendhil Mullainathan on scarcity and the economic mind

You are an economist at Harvard and co-author, with the Princeton psychologist Eldar Shafir, of Scarcity: Why Having Too Little Means So Much (Times Books), in which you argue that a lack of resources, or even of, say, companionship, disrupts people’s ability to think beyond their immediate needs.
A priority might be far more important than a need, but a need presses upon us right now. Say I’m a rag picker and I have to rent a pushcart. A priority could be to stop renting the pushcart and get enough money to buy it. In as little as six months, for the amount I paid to rent it, I could buy it. But I can’t.

So that bind puts you in a cognitive tunnel?
Many structures the poor live in end up almost playing to the psychology of scarcity. If I take a loan at a huge interest rate, what am I doing? I’m fighting the fire I have right now, but I’m making the fire that I have to fight tomorrow bigger.

Aren’t people who experience scarcity well aware of that?
I’ve found in talking about the bandwidth tax—the notion that whatever you’re doing there’s a constant background mental chatter saying, for example, "How am I going to make rent?"—that it resonates with people who have experienced poverty, and it resonates even with people who feel they’ve been unable to interact fully with their kids because part of their mind keeps going back to the need to support their kids.

That need isn’t always about survival so much as keeping up with the Joneses.
I read a great quote from a book on baboons: "Any way you look at it, the problems facing baboons can be expressed in two words: other baboons." That’s entirely true for people as well. A huge part of our brain is social.

This helps us understand socially construed needs. Starving is very hard, but it is also very hard not to be able to buy your kids something they want, which depends on what other kids have. What we should do as a society is stop worrying about what everybody else has and focus more intensely on making sure every person is materially well-off.

If our friend came to us and said, "I’m feeling bad about my neighbor’s new SUV," we shouldn’t say, "Fine, let’s get you a bigger SUV," we should say, "Look, the best, healthiest way for you to manage this would be to stop worrying about it."

When we react to inequality, what psychological forces are at work?
The sense of unfairness is very primitive, and these feelings come out quickly. But most people I know, that’s not who they want to be. Those are not the feelings they aspire to have when a co-worker gets a pay raise. They say, I’m happy with what I have, and I want to focus on what I have.

And wealthier people are often the beneficiaries of economies rigged in their favor.
Western societies are rich enough that the worst-off among us should not be living terrible lives. But once everyone has equality of opportunity, how much should we care if somebody at the top earns a lot? It’s clear when you talk to people about inequality that what fuels the fire is that primitive gut feeling of "how can someone be getting that much; how wrong is that?"

I’m worried that the focus on inequality is a mistake.

That perturbs you?
I’m worried that the focus on inequality is a mistake. Newspaper articles on inequality are almost always discussions of the rich. We ought to be discussing raising the minimum wage and creating a social safety net. But that’s not as interesting as "Oh, my God! Somebody made a billion dollars from an app!" It almost feels like it’s playing to this primitive instinct. I wouldn’t lose sleep if the 1 percent were earning what they earn today but we in the U.S. had ensured that the median worker was doing well and there was a safety net at the bottom.

But the safety net is hardly there?
That’s the shocking part. And there’s almost no discussion of how we’re going to get the safety net in place.

You lived your early childhood in the state of Tamil Nadu, in India, where cash-free subsistence-farming communities still feed most people. Those are now threatened by economic development.
I think we grossly undervalue stability. We say that for growth and opportunity, the market needs instability because it needs lots of change, industries coming and going. But individuals need stability.

This interview was edited and condensed.

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