“By now it should be clear how all this relates to the “improvidence of the poor.” Unfortunately, talking about the self-defeating choices poor people so often make generates a lot of discomfort, because it is usually the first step of an argument that seeks to blame the poor for their own misfortune (followed by a “you made your bed, now lie in it” admonition). As a result, many people on the left choose to deny the phenomenon and insist that any appearance of improvidence is entirely a product of the circumstances that people find themselves in, rather than of the choices they have made. There is an element of wishful thinking in this. Wouldn’t it be nice if all the social problems that one finds among the poor were merely a product of their poverty? Then these problems would be easy to fix, just by redistributing income. But what if, as a matter of fact, poverty is a consequence of the underlying social problem? This puts significant constraints on how much can realistically be achieved through redistribution.
A better approach would be to grant the obvious fact that a lot of poverty (in wealthy countries with a robust labor market and a generous welfare state) is extremely recalcitrant, and often exacerbated by self-defeating patterns of behavior on the part of the poor, but then to deny the right-wing policy implications that are often thought to follow from this. The problem with these policies is that, under the banner of “personal responsibility,” conservatives ignore the distinction between moral hazard problems and the effects of hyperbolic discounting. While forcing people to live with the consequences of their own choices may be effective in the former case, it is unlikely to have much effect in the latter. The problem with people who discount the future too sharply is that they disregard certain incentives (those that occur too far off in the future). To propose those very same incentives as a solution to the problem amounts to little more than piling on.”
“The right-wing formula—defending freedom of choice at the front end, combined with massive punishments at the back end—thus amounts in practice to little more than kicking people after they’re down. The left-wing formula of education, social work, and other “talking cures” feels less coercive, but in practice tends simply to make people more aware of how badly they are screwing up. What people with highly exaggerated discount functions need is a restructuring of incentives, in order to facilitate more effective strategies of self-control.”
Excerpt From: Joseph Heath. “Economics Without Illusions.” iBooks. https://itun.es/us/Gsw_y.l
HKO
Discounting in economic terms is the reduction of future value due to interest rates and time value. A dollar now is worth more than a dollar later. In Heath’s example the behavior that sharply discounts a future benefit resulting from current behavior (saving or exercise) reduces the incentive to act for the benefit of the future. Heath extends the concept of economic discounting to behavior. He insinuates that our poverty programs try to utilize ineffective incentives.
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