Topic: Discrimination
The Economics of Random Stuff: Inner City Culture To understand the achievement gap, not only should we consider genetics and discrimination, but also everyone's preferences.by Jeff Peters
(conservative)
Wednesday, March 4, 2009
The most frequent thing I hear amongst activists aiming to battle something as the achievement gap between people of color and whites is that opportunities and incentives must be provided to stir achievement to close that annoying gap.
There are several ways we can go about this issue of achievement. One can take the Charles Murray perspective, which claims the residual between White and say Black IQ's exist for a reason beyond deficient nurturing. Charles Murray's perspective would lead an economist to impose a constraint or a maximum on the productive capacity of an individual, thereby limiting achievement in the form of, say, worker compensation.
Another perspective is to understand the nurturing component more deeply. The role of parenting is extremely important in the childhood years of everyone, because it is ultimately a point in time when preferences or "utility functions" are extremely unstable. Parents are nurturing their children to adhere to social cultural norms by teaching them a certain form of English, a sort of dress style, a particular taste for food, etc. In other words, parents, and other agents in one's childhood years, are taking part in developing a child's preferences.
The implications of this concept are important, mostly because it is the utility function or ranked preferences that ultimately determine what is considered a "good" or "bad", the magnitude of the effects of price changes in the market, and relative utilities between goods or bads being consumed. This also implies that artificial or government sponsored incentives are not always the best way to get people out of poverty. Think about the billions of dollars thrown into education to help those at the bottom of the socioeconomic latter by reducing education costs. Yet also think about the persistence of this notorious achievement gap. That's because, again, preferences are what's at the core of what will and what will not work.
Preferences will have an impact on the amount of education to pursue, the amount of money to save - and thus the amount of wealth to create. If people are not reared in such a manner that education, fiscal responsibility, and wealth creation are important, then it is likely that future adults will not pursue any of those agendas.
When I lived in Brooklyn, New York, I saw too much emphasis on living beyond one's means. People consumed more today with no emphasis on assuming responsibility for the future. Some folks just aren't patient enough and would rather consume more luxuries today rather than tomorrow. No wonder why I have seen more Cadillac luxury cars in my neighborhood in Brooklyn and in the South Side of Chicago, than where I lived during High School - Amherst, Massachusetts.
The folks who don't indebt themselves with luxuries are those who create wealth for themselves through human capital investment or enterprise - not the impatient folks who trade off their exciting young life with a future of bankruptcy and poverty. Coming from Brooklyn, how did I ever immerse myself into ideas of entrepreneurship and personal finance? It certainly wasn't the prudence and financial intelligence of my parents for they consume inconspicuously. It was through reading random books and watching random infomercials about money. Basically, it was pure luck and chance that exposed me to the idea of being smart about money.
Also, think about the implications of preferences on incentivizing a people to build wealth and educate themselves on consumer economics. If you were to throw money at individuals who prefer a swanky lifestyle than a responsible one, with the condition that this money be used for higher education, would it work? The whole point of this article is, not necessarily because these individuals probably would rather pursue a swanky lifestyle. If parents expect their children to go to college, they ought to raise their children with emphasis on education - to mold those preferences and utility functions just right.
However, should parents subject their children's future wholly to a random probability that their children will see the light and invest some of their time in human capital? I think not. But that question is a subjective one. If people would rather raise their children to be poor and fiscally irresponsible and consume luxury with no regard for their future, then that's their own preference. However, these ardent activists ought to differentiate between what happens from preferences and what happens from discrimination.
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Posted By: Walt Thiessen
Date: 2009-03-05 07:10:41
What about the monetary system itself? It's the main reason why people live beyond their means. A monetary system that depends upon debt in order to grow an economy must always produce participants in that economy who believe that the way to get ahead is to go into debt.
"If people would rather raise their children to be poor and fiscally irresponsible and consume luxury with no regard for their future, then that's their own preference."
Somehow it is possible to be poor and to "consume luxury"?
And people, that is people just like you and me, will consciously raise their children to be poor? They will choose [preference] this? This is somehow in their "self interest"? But not in the "self interest" of superior humans who make superior choices? Gee, I didn't know everything was so darn simple!
Posted By: Christopher Espinal
Date: 2009-03-05 14:05:47
"But not in the "self interest" of superior humans who make superior choices? Gee, I didn't know everything was so darn simple!"
It is widely known amongst economists that different people each have a different tolerance for work and effort. That's why some people are happy with making 50,000 per year, 20,000 per year, and others feel fine with 10 million per year......etc. The fact that parents aren't taking their time to raise their children to be wealth builders or middle class citizens comes from two things: they don't know how or they don't care to do so.
The point of the article is that people who talk about helping the black community and my community (Latino community) thrive ought to distinguish between both things. Sometimes their arguments get caught up in the idea that people don't know how to raise their children to achieve the "american dream" because of discrimination. That's not always the case as some parents prefer to do other things than raise their children to be more "successful."
Discrimination might be a problem since it does raise the cost of people of color, woman, and poor whites to thrive. From experience, I know discrimination is not the only factor.
For your other sarcastic point: "Somehow it is possible to be poor and to "consume luxury"? "
Have you ever watched TV and seen the stereotypical mexican with a really nice car? That can be observed in real life in the mexican neighborhoods of Chicago.
Have you ever drove through Detroit, the South Side of Chicago, or Brownsville in New York City and observed the numerous Mercedes Benz, Lincolns, and Cadillac Dealerships? Yes, the poor in this country put their time and money (which usually they don't have) into purchasing swanky clothing and vehicles.
And what does that do - that destroys their opportunity in their future to do other things that can possibly help them acquire the sorts of luxuries with no problem. At the end of the day, people do what they do because they prefer to do it or to maximize their utility. However, incentives can change the choices people make, only if their preferences are responsive.
Thanks for the comment Gene. Interesting questions.
Posted By: Christopher Espinal
Date: 2009-03-05 14:11:52
Hello Walt,
"What about the monetary system itself? It's the main reason why people live beyond their means. A monetary system that depends upon debt in order to grow an economy must always produce participants in that economy who believe that the way to get ahead is to go into debt."
This is somewhat true since the monetary system incentivizes people to take out loans through low interest rates. The low interest rate makes the loan market accessible to more people - but that depends on how much the individual values consuming a good that is beyond his or her income. Just because the monetary induces lower interest rates doesn't necessarily mean that these individuals will not take out the loans necessary to purchase a nice luxury car. Again, it's a matter of preferences and how they relate to the interest rate. Great point though!
Posted By: Christopher Espinal
Date: 2009-03-05 14:17:10
"But not in the "self interest" of superior humans who make superior choices? Gee, I didn't know everything was so darn simple!"
Just to look at this point one more time, I think you're making the piont that it's not in my self interest or the self interest of the activists that these people make "less superior" choices.
To some degree that's true because culture developes into stereotypes - and people who don't know me are always bound to confuse me for the folks that make those "less superior" choices. It happens, but not frequent enough to turn me into a self-victimized character. It's certainly a negative externality.
I wasn't being sarcastic about being poor and consuming luxury, it isn't possible. I know exactly what you are saying about the cars,etc. but a truly poor person needs to eat, not drive around.
The poor are victimized by our financial and monetary system. Inflation itself is probably the biggest reason people stay poor or get poorer. It is a constant uphill battle and the number of "poor" choices a person can make and still come out okay depends on their social position. The higher up, the less impact a bad choice has.
The family issues you bring up are bigtime true, but families are also constantly being assaulted by corporate marketing. Families are not valued highly in our culture[which i think is what you were saying].
My view is we ought to stop subsidizing and helping people who don't need it, the elites and megaconglomerates and then see where that leaves us. Somehow, I would guess our poor wouldn't be so poor.
It's a very good and honest article, but you should also give yourself credit that you have above average aptitude and smarts and average people in your situation might not be so lucky. I think a free economy should be able to reach "average" people no matter where they come from. Simply because most people are average.
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