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9.26.2005

Save The Poor Dept.

This should be a new topic on this blog. Oded and Josko, on a delightful but short visit to Boston, incited a good conversation on the topic. I don't think the poor need to be saved from themselves. Oded does.

The link above is to a topic I find very interesting generally: why do people make irrational decisions about insurance? For example, they buy extended warranties on appliances but not on themselves (long term care insurance).

Another general way of asking: when can you trust people to be rational? When can't you?

It would seem people respond to incentives very well. It would seem many don't understand the power of compounding interest, for increased credit card debt, or lack of long-term savings.

Is there a market for very inexpensive financial services? Imagine an internet cafe where, for a small fee, you could get an advisor and MS Money Account. I could train someone with a high-school education to provide advice at minimum wage for a great number of people. It needn't be general, as the best results come from repeated consultation, e.g. working over the course of months to pay down debt.

You could call the shop "free money", if contractually you only get paid a percentage of the growth in net worth.

2 Comments:

At 11:22 AM, Blogger joŇ°ko said...

On a short but sweet trip to Boston, I verified that Oded, Ivan, and I are one mind on the question of taxes (flat, with a negative tax for the poor, avoiding local maxima in income). Oded mentioned the only remaining question might be the specific _rate_ of said flat tax.

Meanwhile, on the question of public welfare, Friedman noted that if, as a government, you're gonna coerce people to donate their money to the poor through high taxes, you're way better off efficiency-wise to give away everything in the form of pure cash---don't build public housing, for instance, give away money that can be used for rent!

This sorta brings up the whole question as to whether the poor can even be trusted to spend cash to better their lives. I think 95% can, and the remaining crackheads can be covered by rehabilitation houses paid for by the huge amount of money saved by ending the drug-war. Just sayin'.

 
At 2:25 PM, Blogger Miguel said...

Didn't you live in New York for a few years? There's a spectacular market for financial services for the poor. However, because we live in a free country where the market sorts out good from bad, that particular market is dominated by snake-oil salesmen. I'm sure if you think about it, you'll see that your Free Money company will be at a competitive disadvantage, compared to the multitude of already established companies which claim to do what you do, but whose "services" cost even less than the ones you're offering.

The elimination of poverty is tricky, to say the least.

 

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