Researchers wanted to test out whether this widely held view of panhandlers as lazy alcoholics getting rich off others was correct. The Union Square Business Improvement District, a collection of 500 property owners in downtown San Francisco, hired GLS Research to survey panhandlers over a two-day period in March.
They found that, for the vast majority of beggars, Stossel’s view was simply not true.
For the last several years, the nonprofit sector has been having a very serious conversation about ‘overhead’. It’s a conversation that stems from a very real problem: many donors believe that nonprofit organizations should spend at least 77% of their budgets directly on the services they provide. That might not sound like a big deal, but nonprofits – like other organizations – also need to spend money on staff salaries, office supplies, fundraising and marketing efforts, and so on. And while there’s no agreement over what nonprofit organizations should be spending on overhead, there’s broad agreement that ‘as little as possible, even if it hurts the organization’ isn’t the right answer.
The problem is simple: the spending patterns that donors want to see (very little overhead) and the spending patterns that help organizations solve social problems (more than very little overhead) don’t match. And the very serious conversation is important.
But there are deep problems with the conversation we’ve been having. One of the big problems came to my attention in this recent post from Amy Eisenstein; it’s a post about the Wounded Warrior Project scandal.
For those of you who aren’t in the loop, Wounded Warrior Project is an organization that serves veterans wounded in the military actions that followed September 11, 2001. It’s an organization that does very well financially, receiving more than $300 million in donations in 2014. Earlier in 2016, CBS News reported that the Project was spending lavishly on conferences and events. Serious questions arose about whether the organization was wasting donor money, and in March the Project fired its CEO and COO while claiming that the core problem was that the organization ‘grew to fast.’
And normally, that would be it. Wounded Warrior Project would have to work on rebuilding trust with its constituents and the rest of us would move on.
Eisenstein, however, uses this as an opportunity to participate in the very serious conversation about overhead. In her post, Steve Nardizzi – the now-former CEO of Wounded Warrior Project – is an example of a great leader, “a real inspiration to fundraisers everywhere” who shows “provided unprecedented leadership and growth to Wounded Warriors.”
“Somewhere along the way,” she writes, “he crossed a line.”
Yes. The Wounded Warrior Project scandal isn’t about well-qualified and effective staff being paid well.1But, seriously, let’s have some humility when it comes to executive pay. Nardizzi had an annual base salary of $375,000. Many people in the nonprofit sector would defend that kind of salary because someone in a similar position in the for-profit sector would make that amount or more. That’s all well and good, but we also need to ask whether anyone needs to be making that kind of salary. It isn’t about fixing broken chairs. It isn’t about replacing outdated computers. It’s about lavish parties, first class accommodations, and suing smaller organizations. It’s about failing to deliver on the promises that the Project made to donors… and to wounded veterans.
In other words, it’s not about overhead. It’s about waste.
And a big problem with our very serious conversation about overhead is that we’re too fuzzy on that difference.
Here’s the thing. I don’t think it’s that difficult to convince supporters about the value of overhead. People understand that we need to spend money on salaries and buildings and office supplies and on community building. All we have to do is connect that spending to our missions.
People will understand… if we can show them how our spending improves their impact.
That’s going to take some work. The first step is to admit that there’s a difference between overhead and waste.
Overhead helps us work, grow, and improve lives. Salaries for staff who attain greater outcomes are overhead. Software that helps us understand out clients better is overhead. Communication vehicles that help us build communities and create change are overhead. And I believe that people will understand that.
Waste doesn’t help us work, grow, and improve lives. Custom made maracas with the logo for every staff member is waste. Entering a meeting by rappelling down the side of a building is waste. Annual conferences as five-star resorts are waste. Shiny new toys that don’t advance the mission are waste. People understand that.
In order to have a better conversation about overhead – in order to have one that really is very serious – we need to take a serious look at our spending and think about what is overhead and what is waste. It’ll be different for every part of the sector, but only once we’ve done this can we start really thinking about what an appropriate amount is and how to educate our donors about it.
|1.||↑||But, seriously, let’s have some humility when it comes to executive pay. Nardizzi had an annual base salary of $375,000. Many people in the nonprofit sector would defend that kind of salary because someone in a similar position in the for-profit sector would make that amount or more. That’s all well and good, but we also need to ask whether anyone needs to be making that kind of salary.|
Remember how he told you, while he was still in Galilee, that the Son of Man must be handed over to sinners, and be crucified, and on the third day rise again.” Then they remembered his words, and returning from the tomb, they told all this to the eleven and to all the rest. Now it was Mary Magdalene, Joanna, Mary the mother of James, and the other women with them who told this to the apostles. But these words seemed to them an idle tale, and they did not believe them.
He was oppressed, and he was afflicted, yet he did not open his mouth; like a lamb that is led to the slaughter, and like a sheep that before its shearers is silent, so he did not open his mouth. By a perversion of justice he was taken away. Who could have imagined his future? For he was cut off from the land of the living, stricken for the transgression of my people. They made his grave with the wicked and his tomb with the rich, although he had done no violence, and there was no deceit in his mouth.
Jesus, knowing that the Father had given all things into his hands, and that he had come from God and was going to God, got up from the table, took off his outer robe, and tied a towel around himself. Then he poured water into a basin and began to wash the disciples’ feet and to wipe them with the towel that was tied around him. He came to Simon Peter, who said to him, “Lord, are you going to wash my feet?” Jesus answered, “You do not know now what I am doing, but later you will understand.”
This is completely commonplace in the nonprofit sector. People from the “business world” talking to nonprofit staff like they have never successfully operated a blender, let alone worked (successfully) in their underpaid, understaffed, and completely vital position for years.
Recently, I watched the movie Stardust, based on the novel by Neil Gaiman. A few days later, I read a white paper from ideas42 titled Poverty Interrupted: Applying Behavioral Science to the Context of Chronic Scarcity. A similar idea – or, at least, an idea that looked similar when I saw at them one after the other – appeared in both.
The protagonist in Stardust is a boy named Tristan (Charlie Cox) who lives in a village called Wall. Wall is named for the wall that runs alongside it, a wall that has a gap that leads to a magical world. Tristan has a crush on Victoria (Sienna Miller), who sends him on a quest to bring her a fallen star. That quest leads Tristan through the gap in the wall and to the magical world of Stormhold where he meets and captures Yvaine (Claire Danes), a fallen star. On their journey back to Wall, they have adventures, fall in love, and are pursued by a witch who wants to take Yvaine’s heart in order to gain eternal life.
There is a moment when Yvaine and Tristan have been captured by pirates. Yvaine notes that, when she was a star in the sky, she used to watch people having adventures and envied them. Here’s what Tristan says: “Look, I admire you dreaming. A shop boy like me… I could never have imagined an adventure this big in order to wish for it. I just thought I’d find some lump of celestial rock, take it home and that would be it.”
And here’s how Yvaine replies:
If there’s one thing I’ve learned about all my years watching Earth, is that people aren’t what they may seem. There are shop boys, and there are boys who just happen to work in a shop for the time being. And trust me Tristan, you’re no shop boy. You saved my life. Thank you.1Matthew Vaughn (writer, director) and Jane Goldman (writer), Stardust (Los Angeles: Paramount Pictures, 2007), Netflix
“There are shop boys, and there are boys who just happen to work in a shop for the time being.” That’s a big statement.
There are boys who are shop boys. There are people who, deep down in the very fiber of their being, belong in a shop. It is who they are. It is who they always will be. Even if they work somewhere else – if they become pirates, for example, or kings – they will still be shop boys.
And there are boys who just happen to work in a shop for the time being. They are something else.
Similarly, in Poverty Interrupted, I came across this:
How do you describe the services your organization provides? What about the people you serve? The role your staff members play? These questions have implications far beyond organizational “branding:” the language you use and the labels you apply can have an outsized impact—positive or negative—on who takes up your service, how they use it, how your staff treats them, and the way their participation affects their self-esteem or self-image. If you conceive of someone as a “recipient” or “case,” for instance, it’s easier to adopt a mental model of her as a passive recipient of support than it would be if you referred to her as a “member,” “customer,” or “participant.” Because your mental model will shape your behavior toward her, a “recipient” may begin to believe that she is indeed needy or dependent.
In this paper, for instance, we’ve deliberately avoided using constructions like “needy families” and “poor people” to describe families living with low incomes. When used in this way, these words subtly reinforce the widespread perception that these families are qualitatively different from the rest of us, rather than regular people caught in a particular economic circumstance. When they are people first, and low-income second, it becomes easier to acknowledge individual situations, rather than to fall back on personal or societal stereotypes about “the poor.”2Allison Daminger, Jonathan Hayes, Anthony Barrows, and Josh Wright, “Poverty Interrupted: Applying Behavioral Science to the Context of Chronic Scarcity” ideas42 (2015), 44. The authors also discuss the importance of how we title staff and name programs. What we call things makes a difference.
To put that another way: there are poor people, and there are people who just happen to live in poverty for the time being.
Actually – and I think the authors of Poverty Interrupted would agree – I’m not so sure that there are poor people. There are only people who just happen to live in poverty. And that’s an important distinction. A lot of organizations act as though there are poor people, as though there’s something ontological about poverty. A lot of the people making the case against charity act as though there is something ingrained about being poor.
But there isn’t something ingrained. ‘Poor’ isn’t an ontological status. There are simply people who just happen to live in poverty. And if we work together as a community, they just happen to live in poverty for the time being.
And while I can’t promise that I’ll be good about avoiding terms like ‘the poor’ and ‘poor people’, I will try to be aware that even in my writing it is important to treat people as people first and low-income second (or third… or thirtieth).
There are, after all, shop boys, and there are boys who just happen to work in a shop for the time being.
|1.||↑||Matthew Vaughn (writer, director) and Jane Goldman (writer), Stardust (Los Angeles: Paramount Pictures, 2007), Netflix|
|2.||↑||Allison Daminger, Jonathan Hayes, Anthony Barrows, and Josh Wright, “Poverty Interrupted: Applying Behavioral Science to the Context of Chronic Scarcity” ideas42 (2015), 44. The authors also discuss the importance of how we title staff and name programs. What we call things makes a difference.|
As he was now approaching the path down from the Mount of Olives, the whole multitude of the disciples began to praise God joyfully with a loud voice for all the deeds of power that they had seen, saying, “Blessed is the king who comes in the name of the Lord! Peace in heaven, and glory in the highest heaven!” Some of the Pharisees in the crowd said to him, “Teacher, order your disciples to stop.” He answered, “I tell you, if these were silent, the stones would shout out.”
So go out onto the corner and multiply the number of bars you see by 21 and think about what it would feel like to open up a bar on that newly envisioned corner. That’s what you’re up against in the charitable marketplace, because foundations and donors range from local to regional to national, and you’re going to need all of those levels of support to survive.
One of the biggest questions in addressing poverty is the question of why people remain poor despite the many public and private resources available to them. Among those who make the case against charity, the theory is often that something is wrong with the person who is poor: they are dependent, they are entitled, they lack a strong work ethic. The solutions proposed follow naturally from the diagnosis: limit charitable giving to emergencies, develop an entrepreneurial spirit, teach people the hidden rules of the middle-class.
In Scarcity: Why Having Too Little Means So Much, economist Sendhil Mullainathan and behavioral scientist Eldar Shafir present an alternative idea: perhaps poverty is the reason that people remain poor.
Of course, Mullainathan and Shafir’s argument is deeper than that. Throughout the book, they look at a variety of kinds of scarcity – poverty (scarcity of money), busyness (scarcity of time), loneliness (scarcity of social connection), and so on – and discover that these very different forms of scarcity share an underlying psychology of scarcity. The person who is busy behaves the same way towards time that the person who is poor behaves towards money. Scarcity – “having less than you feel you need” – has “a common logic… that operates across diverse backdrops.”1Sendhil Mullainathan and Eldar Shafir, Scarcity: Why Having Too Little Means So Much, Kindle Edition (New York: Henry Holt, 2013), 4-5
Through detailed and varied experiments and observations, Mullainathan and Shafir give us a picture of that psychology of scarcity. It’s a very different picture than that painted by advocates of welfare and charity reform.
There are three key concepts in Mullainathan and Shafir’s theory that I want to take a look at here: tunneling, bandwidth, and slack. Together, these three ideas create a portrait of the psychology of scarcity and help explain why people facing scarcity make the decisions that they do.
When people face scarcity – regardless of the kind of scarcity they face – they become intensely focused on making the most of what they have: they tunnel. This can have immense benefits. Many or us know the power that a looming deadline has to increase productivity. In the face of a deadline, we’re able to focus on the task at hand to the exclusion of all else and complete projects that had been languishing in the wilderness of ample time. Scarcity captures and focuses the mind in a way that is “unavoidable and beyond our control.”2Mullainathan and Shafir, Scarcity, 26
While this can be beneficial – a sort of focus dividend – it can also be tremendously damaging: “Focusing on one thing means neglecting other things.”3Mullainathan and Shafir, Scarcity, 29 Things inside the tunnel come into sharper focus while things outside the tunnel become invisible. The effect is that we make choices that are good in relation to the things we’re focused on even if they are bad in relation for things we’re not focused on.
A perfect example of this is payday loans. Mullainathan and Shafir use the example of Sandra Harris, an otherwise successful radio host who began taking payday loans after her husband lost his job. Each month, she would roll the loan over to make ends meet. She bounced checks, her car was repossessed, and she ended up deep in debt.4Mullainathan and Shafir, Scarcity, 105-107 The scarcity that Harris faced now created a tunnel that maintained that scarcity in the future:
That initial bill she could not pay created scarcity. She then tunneled on making ends meet that month. Within that tunnel, the payday loan proved eminently attractive. Its benefits fell inside that tunnel: it helped her make it through the month. The costs of the loan— the repayment and the fees— all fell outside this tunnel. The loan seemed to offer a solution to the problem she was fixated on.5Mullainathan and Shafir, Scarcity, 108-109
Tunneling leads us to see only the consequences of our choices that are inside the tunnel and to ignore the consequences that are outside the tunnel. We’ve all made choices that had immediate benefits and distant – even invisible – disadvantages: skipping the long-term benefits of a visit to the gym in favor of getting a project done before a pressing deadline, for example. This is a result of scarcity.
Scarcity causes us to tunnel, focusing on the challenges of our scarcity to the exclusion of other things. It captures our attention.
The result of that capture is that it limits our bandwidth. Mullainathan and Shafir use the idea of bandwidth as a shorthand for a variety of psychological constructs.6Mullainathan and Shafir, Scarcity, 47 Among these are cognitive capacity (the ability to solve problems, engage in logical reasoning, etc.) and executive control (the ability plan, control impulses, and so on).7Mullainathan and Shafir, Scarcity, 47 Scarcity, according to Mullainathan and Shafir, “directly reduces bandwidth.”8Mullainathan and Shafir, Scarcity, 47 People facing scarcity aren’t inherently less able to solve problems, retain information, or control impulses. They simply have fewer resources available to actually do those things.9Mullainathan and Shafir, Scarcity, 47
This last point is especially important. Mullainathan and Shafir’s research showed that test subjects suffered a 13 to 14 point drop in IQ when preoccupied by scarcity. But that effect exists only when preoccupied with scarcity. People facing scarcity aren’t any more or less intelligent than people not facing scarcity, but they appear to have lower intelligence because some of their bandwidth is being used elsewhere.10Mullainathan and Shafir, Scarcity, 52 Similarly, people who are facing scarcity show less self-control, but only when they are facing scarcity. They don’t have less self-control, but they appear to have less because their bandwidth is being taxed.11Mullainathan and Shafir, Scarcity, 55-56
All of this leads to a fascinating bottom line, a narrative that counters a lot of popular opinion about the capacities of the poor: “Poverty itself taxes the mind… We would argue that the poor do have lower effective capacity than those who are well off. This is not because they are less capable, but rather because part of their mind is captured by scarcity.”12Mullainathan and Shafir, Scarcity, 60 I’ll return to this idea shortly, since it has huge implications for how we address poverty. First, though, I want to look at a third key concept from Mullainathan and Shafir’s work.
Scarcity forces us to think in terms of trade-offs. Mullainathan and Shafir use the example of ordering a $10 cocktail while out at a restaurant with friends. When we think about it, we know that any $10 purchase means that we don’t have that $10 to spend elsewhere. When we’re not facing scarcity, however, we behave as though there is no trade-off. Because the cost is low, we act as though there are an infinite number of $10 purchases in our budget. If we’re on a diet, though, that drink suddenly has a trade-off: having that many calories now really does mean giving up dessert after dinner. Scarcity means we must account for everything.13Mullainathan and Shafir, Scarcity, 70-71
Scarcity creates trade-off thinking. But a lack of scarcity provides slack. We experience slack when we have a light week with holes in our schedule or when we have enough money that we don’t need track our spending. Importantly, this isn’t the time or money that we purposefully put aside for unforeseen circumstances; it’s not the forty-five minutes we schedule for a twenty-five minute drive or the money we have in an emergency account. Instead, slack is the by-product of abundance. It’s the result of not having to budget every dollar or hour.14Mullainathan and Shafir, Scarcity, 74-75
Here’s the important point: slack provides room to fail.
When we have slack, we can make poor choices. When we have a large financial cushion, we can make a seemingly infinite number of dumb $10 purchases without having to worry about the trade-offs we’re making. Someone who is poor, however, does have to think about those trade-offs; a bad $10 purchase has consequences for her that it doesn’t for someone who enjoys financial slack. And that leads to a vicious feedback loop. Because of bandwidth usage, people facing scarcity are more likely to make those poor decisions and less likely to have the slack necessary to avoid them.
If the arguments that Mullainathan and Shafir make are true and their theories accurate, they have huge implications for how we address poverty. As Mullainathan and Shafir write, we often assume that the cause of poverty is at least partially internal. Even if we admit that accidents of birth contribute to poverty, “one prevailing view explains the strong correlation between poverty and failure by saying failure causes poverty.”15Mullainathan and Shafir, Scarcity, 115
Mullainathan and Shafir, however, suggest that “causality runs at least as strongly in the other direction: that poverty— the scarcity mindset— causes failure.”16Mullainathan and Shafir, Scarcity, 115 The problem is that the poor aren’t just short on money. They’re also short on bandwidth. And those two problems are, of course, interrelated: being poor results in having less bandwidth available to address the roots of that poverty, and having less bandwidth available leads to making choices that keep a person poor.
This suggests that we might be able to address poverty by, well, addressing poverty. It’s a common idea among those making the case against charity that we need to address the mindset of poverty before (or alongside) addressing the material facts of poverty. But this understanding suggests that addressing the material facts of poverty also addresses the mindset. Reducing material scarcity helps us leave the scarcity mindset behind and behave in ways that will keep us out of poverty!
Mullainathan and Shafir provide an interesting example of this. Street vendors in Koyambedu market in Chennai, India, are often caught in significant debt: they borrow 1,000 rupees each day to buy stock, sell the stock for 1,100 rupees (a 100 rupee profit), and pay 1,050 rupees back to the vendor at the end of the day (the 1,000 rupee principal plus an astonishing 5% interest). The amazing thing is that each vendor has a small amount of slack that they use for tea, a snack, and so on. Let’s assume they spend about 5 rupees of slack each day. If a vendor spent that slack on inventory instead, she would be debt free in 30 days – thanks to the power of compounding – and effectively double her profit for the rest of her working days.17Mullainathan and Shafir, Scarcity, 123-124
As an experiment, Mullainathan and Shafir bought the debt of hundreds of vendors, letting them out of the debt trap.18As an aside, I should point out that 1,000 rupees is about $15. The direct cost of buying hundreds of vendors out of their debt isn’t huge. They then tracked the now debt-free vendors – and others – for a year. For several months, the vendors didn’t fall back into debt. They did exactly as we would hope. But one by one, they did fall back into debt. By the end of the year, they were back where they had started.19Mullainathan and Shafir, Scarcity, 133-134
But what caused them to fall back into debt?
“The core of the problem,” according to Mullainathan and Shafir, “is a lack of slack.”20Mullainathan and Shafir, Scarcity, 135 When the vendor encountered a shock bigger than the slack she had available – even if it was a foreseeable shock – she used her savings to cover it… and tunneling meant that she wouldn’t think about the future consequences of raiding those savings.21Mullainathan and Shafir, Scarcity, 135-136 Escaping debt – or scarcity more broadly – means more than being debt free, it also means having the tools necessary to deal with shocks.
Mullainathan and Shafir are clear that this doesn’t mean “that the only way to avoid scarcity traps is to have wealth large enough to weather all shocks… that the only way to solve the vendor’s problem is to give her even more money.”22Mullainathan and Shafir, Scarcity, 137, emphasis original But there’s no reason to suppose that this couldn’t be a solution. If the vendors had not only had their debt forgiven, but had also been provided with a cushion they could use until they had built up savings, would that have helped them avoid falling back into debt?
The more important point is that the vendors didn’t immediately fall back into debt; they didn’t waste what was to them a huge amount of money. Instead, they fell back into debt when they encountered a bump in the road. And that suggests that we really can help people by providing them with material or financial resources. Poor vendors in Chennai aren’t irresponsible, they’re consistently caught in situations where their attention is captured by the reality of scarcity. When we help them overcome scarcity, we also help them overcome the mindset that keeps them in poverty.
The understanding of poverty – and scarcity more broadly – provided by Mullainathan and Shafir runs counter to the narrative we’ve become used to. The poor aren’t dependent, entitled, or lacking a work ethic. They aren’t caught in a culture of poverty.
What Mullainathan and Shafir are proposing is a different direction of causation. It isn’t that irresponsible behaviors cause material poverty (though they may contribute). It’s that material poverty causes irresponsible behaviors. If we accept this direction of causation, we can accept that material assistance – contra those making the case against charity – really might be an effective way of helping the poor.
This counterintuitive narrative makes Scarcity a powerful book. But if that’s all that it offered, it would be easy to dismiss. Fortunately, Mullainathan and Shafir do offer something else. Scarcity doesn’t just provide a counter-narrative. It isn’t assertions and anecdotes, though it does contain both. It’s claims are backed up by real research in the forms of deep background reading, interactions with people facing scarcity, and numerous experiments.
They are embarking on a true science of scarcity. And in an era of opinions and assertions, that science is desperately needed.
|1.||↑||Sendhil Mullainathan and Eldar Shafir, Scarcity: Why Having Too Little Means So Much, Kindle Edition (New York: Henry Holt, 2013), 4-5|
|2.||↑||Mullainathan and Shafir, Scarcity, 26|
|3.||↑||Mullainathan and Shafir, Scarcity, 29|
|4.||↑||Mullainathan and Shafir, Scarcity, 105-107|
|5.||↑||Mullainathan and Shafir, Scarcity, 108-109|
|6.||↑||Mullainathan and Shafir, Scarcity, 47|
|7.||↑||Mullainathan and Shafir, Scarcity, 47|
|8.||↑||Mullainathan and Shafir, Scarcity, 47|
|9.||↑||Mullainathan and Shafir, Scarcity, 47|
|10.||↑||Mullainathan and Shafir, Scarcity, 52|
|11.||↑||Mullainathan and Shafir, Scarcity, 55-56|
|12.||↑||Mullainathan and Shafir, Scarcity, 60|
|13.||↑||Mullainathan and Shafir, Scarcity, 70-71|
|14.||↑||Mullainathan and Shafir, Scarcity, 74-75|
|15.||↑||Mullainathan and Shafir, Scarcity, 115|
|16.||↑||Mullainathan and Shafir, Scarcity, 115|
|17.||↑||Mullainathan and Shafir, Scarcity, 123-124|
|18.||↑||As an aside, I should point out that 1,000 rupees is about $15. The direct cost of buying hundreds of vendors out of their debt isn’t huge.|
|19.||↑||Mullainathan and Shafir, Scarcity, 133-134|
|20.||↑||Mullainathan and Shafir, Scarcity, 135|
|21.||↑||Mullainathan and Shafir, Scarcity, 135-136|
|22.||↑||Mullainathan and Shafir, Scarcity, 137, emphasis original|