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Yes, they can, or should I say “Fukien yes they can”?

Bi He Liu rested his head against the sun-baked window of the Happy Travel bus and tried to enjoy the rare sensations of motion and light. Six days out of seven, Mr. Liu works a 3 p.m.-to-3 a.m. shift as a cook in a suburban Philadelphia restaurant. He rarely sees the sun — or much else beyond the kitchen stove and the two-room apartment he shares with six other men. ”The boss and the pots and pans and the other workers,” said Mr. Liu, a stick-thin former farmer from Fujian Province on China’s southeastern coast. ”That’s it.” . . . Then a stop at the Bank of China branch to wire home most of his $1,900 monthly salary to pay down his smuggling debt. Finally, he said, he wanted an hour of ”relaxation” with one of the prostitutes waiting for the Monday crowds. ”Today,” said Mr. Liu, ”I feel alive.”

And here’s Scott Alexander:

I can’t even really believe that a rising tide will lift all boats anymore. Not only has GDP uncoupled from median wages over the past forty years, but there seems to be a Red Queen’s Race where every time the GDP goes up the cost of living goes up the same amount. US real GDP has dectupled since 1900, yet a lot of people have no savings and are one paycheck away from the street. In theory, a 1900s poor person who suddenly got 10x his normal salary should be able to save 90% of it, build up a fund for rainy days, and end up in a much better position. In practice, even if the minimum wage in 2100 is $200 2016 dollar an hour, I expect the average 2100 poor person will be one paycheck away from the street. I can’t explain this, I just accept it at this point. And I think that aside from our superior technology, I would rather be a poor farmer in 1900 than a poor kid in the projects today.

In 1900, poor people were packed tightly into tenements in the Lower East Side of Manhattan. Immigrants from Fujian province (aka Fukien) are still willing to live that way, and can save the vast majority of their incomes. They are even willing to work the 72-hour workweek that was common in 1900.

And yet Scott’s also right. The average poor person who is born in America doesn’t save anything. Indeed lots of middle class, and even upper middle class Americans don’t save anything. And I believe he’s right that someone in the year 2100 earning a legal minimum wage, even if $200/hour in 2016 dollars, will still be considered poor.

In one sense, Scott is making a point I’ve frequently made, that inflation is a meaningless concept. He’s basically defining the cost of living as “the cost of living the way we live now.” That’s not at all what economists mean by the term, but I’ve argued that this is how most people understand the term. Thus if the price of a RCA color TV set was $300 in 1966, and the price of a 50 inch Samsung HDTV is $600 today, then most people would say that the “cost of furnishing your house with a state of the art TV has doubled”, whereas economists would say the price of TVs has fallen by 80% or 90%.

Why will the poor always be with us?

1. Because we think of poverty in relative terms.

2. We are very good at noticing subtle differences in status. Make the differences smaller in objective terms, and they’ll still seem just as big in subjective terms. If everyone in my department had a salary within $1000 of each other, then differences of just $50 or $100 would drive people insane.

3. Government quality regulations are set based on average living conditions. Hence societies tend to criminalize poverty. It’s illegal to provide goods and services at Bangladesh levels of quality to Americans. Even SRO apartments have been regulated away; we prefer our poor to be homeless and without medical care, rather than living in substandard housing or getting treated by someone who is not a certified MD.

4. In any society, some people are less competent than others. By no means are all poor people incompetent, but people who are incompetent often end up poor. (I don’t mean ‘incompetetent’ as a pejorative, rather as someone who struggles with the demands of the modern world.) The cynical conservative says that if you completely equalized wealth tomorrow, a year from now there’d be lots of billionaires and lots of homeless people. And unfortunately that’s true.

5. Items 3 and 4 interact in a particularly nasty way. I have a PhD in economics, and yet often feel incompetent when trying to deal with the complexities of government regulations (or private utilities). The regulatory state makes things especially difficult for the poor. Some poor people are in and out of jail for being unable to pay various government fines for violating various regulations.

What can we learn from the story of Mr. Liu? Why could he save a large fraction of his income? Because he wasn’t poor in the American sense of the term. He was a culturally middle class person who happened to have a low wage job.

Should the rest of America’s poor behave like him?

I’m going to dodge that question. (At age sixty I’m too old to fall into that trap.) If you insist, I’ll just say people should do whatever they want—it’s their life. As for public policies; that’s simple—maximize aggregate utility. In my view you do that with low wage subsidies and progressive consumption taxes. Not a guaranteed basic income. But I have an open mind on this issue.

PS. I knew that Taiwan had a few small islands, but didn’t know that they were also called Fujian province.

PPS. I understand that Mr. Liu was not technically poor, especially in 2001 terms. But he had the sort of low wage job ($6/hour) that people associate with the poor. He simply worked more hours than most Americans, and spent less. And it wouldn’t be hard to find lots of examples of Chinese immigrants who save money, despite being technically below the US poverty line.

Or about a billion people in China, for that matter.

PPPS. I have a loosely related post over at Econlog.

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This entry was posted on June 06th, 2016 and is filed under China. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response or Trackback from your own site.



