Why do the poor make so many poor decisions?

I know it's a harsh question,

but take a look at the data.

The poor borrow more, save less,

smoke more, exercise less, drink more

and eat less healthfully.

Why?

Well, the standard explanation

was once summed up by the British Prime Minister, Margaret Thatcher.

And she called poverty "a personality defect."

(Laughter)

A lack of character, basically.

Now, I'm sure not many of you would be so blunt.

But the idea that there's something wrong with the poor themselves

is not restricted to Mrs. Thatcher.

Some of you may believe that the poor should be held responsible

for their own mistakes.

And others may argue that we should help them to make better decisions.

But the underlying assumption is the same:

there's something wrong with them.

If we could just change them,

if we could just teach them how to live their lives,

if they would only listen.

And to be honest,

this was what I thought for a long time.

It was only a few years ago that I discovered

that everything I thought I knew about poverty was wrong.

It all started when I accidentally stumbled upon a paper

by a few American psychologists.

They had traveled 8,000 miles, all the way to India,

for a fascinating study.

And it was an experiment with sugarcane farmers.

You should know that these farmers collect about 60 percent

of their annual income all at once,

right after the harvest.

This means that they're relatively poor one part of the year

and rich the other.

The researchers asked them to do an IQ test before and after the harvest.

What they subsequently discovered completely blew my mind.

The farmers scored much worse on the test before the harvest.

The effects of living in poverty, it turns out,

correspond to losing 14 points of IQ.

Now, to give you an idea,

that's comparable to losing a night's sleep

or the effects of alcoholism.

A few months later, I heard that Eldar Shafir,

a professor at Princeton University and one of the authors of this study,

was coming over to Holland, where I live.

So we met up in Amsterdam

to talk about his revolutionary new theory of poverty.

And I can sum it up in just two words:

scarcity mentality.

It turns out that people behave differently

when they perceive a thing to be scarce.

And what that thing is doesn't much matter --

whether it's not enough time, money or food.

You all know this feeling,

when you've got too much to do,

or when you've put off breaking for lunch

and your blood sugar takes a dive.

This narrows your focus to your immediate lack --

to the sandwich you've got to have now,

the meeting that's starting in five minutes

or the bills that have to be paid tomorrow.

So the long-term perspective goes out the window.

You could compare it to a new computer

that's running 10 heavy programs at once.

It gets slower and slower, making errors.

Eventually, it freezes --

not because it's a bad computer,

but because it has too much to do at once.

The poor have the same problem.

They're not making dumb decisions because they are dumb,

but because they're living in a context

in which anyone would make dumb decisions.

So suddenly I understood

why so many of our anti-poverty programs don't work.

Investments in education, for example, are often completely ineffective.

Poverty is not a lack of knowledge.

A recent analysis of 201 studies

on the effectiveness of money-management training

came to the conclusion that it has almost no effect at all.

Now, don't get me wrong --

this is not to say the poor don't learn anything --

they can come out wiser for sure.

But it's not enough.

Or as Professor Shafir told me,

"It's like teaching someone to swim

and then throwing them in a stormy sea."

I still remember sitting there,

perplexed.

And it struck me

that we could have figured this all out decades ago.

I mean, these psychologists didn't need any complicated brain scans;

they only had to measure the farmer's IQ,

and IQ tests were invented more than 100 years ago.

Actually, I realized I had read about the psychology of poverty before.

George Orwell, one of the greatest writers who ever lived,

experienced poverty firsthand in the 1920s.

"The essence of poverty," he wrote back then,

is that it "annihilates the future."

And he marveled at, quote,

"How people take it for granted they have the right to preach at you

and pray over you

as soon as your income falls below a certain level."

Now, those words are every bit as resonant today.

The big question is, of course:

What can be done?

Modern economists have a few solutions up their sleeves.

We could help the poor with their paperwork

or send them a text message to remind them to pay their bills.

This type of solution is hugely popular with modern politicians,

mostly because,

well, they cost next to nothing.

These solutions are, I think, a symbol of this era

in which we so often treat the symptoms,

but ignore the underlying cause.

So I wonder:

Why don't we just change the context in which the poor live?

Or, going back to our computer analogy:

Why keep tinkering around with the software

when we can easily solve the problem by installing some extra memory instead?

At that point, Professor Shafir responded with a blank look.

And after a few seconds, he said,

"Oh, I get it.

You mean you want to just hand out more money to the poor

to eradicate poverty.

Uh, sure, that'd be great.

But I'm afraid that brand of left-wing politics

you've got in Amsterdam --

it doesn't exist in the States."

But is this really an old-fashioned, leftist idea?

I remembered reading about an old plan --

something that has been proposed by some of history's leading thinkers.

The philosopher Thomas More first hinted at it in his book, "Utopia,"

more than 500 years ago.

And its proponents have spanned the spectrum from the left to the right,

from the civil rights campaigner, Martin Luther King,

to the economist Milton Friedman.

And it's an incredibly simple idea:

basic income guarantee.

What it is?

Well, that's easy.

It's a monthly grant, enough to pay for your basic needs:

food, shelter, education.

It's completely unconditional,

so no one's going to tell you what you have to do for it,

and no one's going to tell you what you have to do with it.

The basic income is not a favor, but a right.

There's absolutely no stigma attached.

So as I learned about the true nature of poverty,

I couldn't stop wondering:

Is this the idea we've all been waiting for?

Could it really be that simple?

And in the three years that followed,

I read everything I could find about basic income.

I researched the dozens of experiments

that have been conducted all over the globe,

and it didn't take long before I stumbled upon a story of a town

that had done it -- had actually eradicated poverty.

But then ...

nearly everyone forgot about it.

This story starts in Dauphin, Canada.

In 1974, everybody in this small town was guaranteed a basic income,

ensuring that no one fell below the poverty line.

At the start of the experiment,

an army of researchers descended on the town.

For four years, all went well.

But then a new government was voted into power,

and the new Canadian cabinet saw little point to the expensive experiment.

So when it became clear there was no money left to analyze the results,

the researchers decided to pack their files away in some 2,000 boxes.

Twenty-five years went by,

and then Evelyn Forget, a Canadian professor,

found the records.

For three years, she subjected the data to all manner of statistical analysis,

and no matter what she tried,

the results were the same every time:

the experiment had been a resounding success.

Evelyn Forget discovered

that the people in Dauphin had not only become richer

but also smarter and healthier.

The school performance of kids improved substantially.

The hospitalization rate decreased by as much as 8.5 percent.

Domestic violence incidents were down,

as were mental health complaints.

And people didn't quit their jobs.

The only ones who worked a little less were new mothers and students --

who stayed in school longer.

Similar results have since been found

in countless other experiments around the globe,

from the US to India.

So ...

here's what I've learned.

When it comes to poverty,

we, the rich, should stop pretending we know best.

We should stop sending shoes and teddy bears to the poor,

to people we have never met.

And we should get rid of the vast industry of paternalistic bureaucrats

when we could simply hand over their salaries

to the poor they're supposed to help.

(Applause)

Because, I mean, the great thing about money

is that people can use it to buy things they need

instead of things that self-appointed experts think they need.

Just imagine how many brilliant scientists and entrepreneurs and writers,

like George Orwell,

are now withering away in scarcity.

Imagine how much energy and talent we would unleash

if we got rid of poverty once and for all.

I believe that a basic income would work like venture capital for the people.

And we can't afford not to do it,

because poverty is hugely expensive.

Just look at the cost of child poverty in the US, for example.

It's estimated at 500 billion dollars each year,

in terms of higher health care spending, higher dropout rates,

and more crime.

Now, this is an incredible waste of human potential.

But let's talk about the elephant in the room.

How could we ever afford a basic income guarantee?

Well, it's actually a lot cheaper than you may think.

What they did in Dauphin is finance it with a negative income tax.

This means that your income is topped up

as soon as you fall below the poverty line.

And in that scenario,

according to our economists' best estimates,

for a net cost of 175 billion --

a quarter of US military spending, one percent of GDP --

you could lift all impoverished Americans above the poverty line.

You could actually eradicate poverty.

Now, that should be our goal.

(Applause)

The time for small thoughts and little nudges is past.

I really believe that the time has come for radical new ideas,

and basic income is so much more than just another policy.

It is also a complete rethink of what work actually is.

And in that sense,

it will not only free the poor,

but also the rest of us.

Nowadays, millions of people feel

that their jobs have little meaning or significance.

A recent poll among 230,000 employees

in 142 countries

found that only 13 percent of workers actually like their job.

And another poll found that as much as 37 percent of British workers