The Investing Class vs the Lottery Class

David Brooks' column today, The Great Seduction By Debt, is full of popular economic misconceptions that divide Americans not into red states and blue states, but instead an "investing class" and a "lottery class." Beyond the desire to classify and quantify naively (and reductively), this opinion proposes a responsible class and an irresponsible one, the latter dominated by those who have little self-control and less common sense. Brooks establishes this dichotomy at the beginning of his column, asserting that the United States, bolstered by Puritan moralities, used frugality as a way to escape excess and decadence. Thus, the underlying message is that people's perspectives towards money determine entirely their use of it, rather than a more complex interaction that includes, oh, the job opportunities out there for people, the price of gas and food, and so forth. Brooks even calls financial choices "financial mores" as if finances is all about choice and good or bad decisions. No "blessed are the poor" here because in this worldview, the poor incur censure upon themselves.

His delineation and diagnosis of America's ills involves this "stark polarization" where

On the one hand, there is what the report [he's referring to a think tank publication] calls the investor class. It has tax-deferred savings plans, as well as an army of financial advisers. On the other hand, there is the lottery class, people with little access to 401(k)’s or financial planning but plenty of access to payday lenders, credit cards and lottery agents.

Note that his characterization is based on two elements of wealth production: first, IRAs and second, debt. This immediately suggests that deferred gratification and sacrifice are the traits of the first class and greed and impatience the habits of the latter.

It his characterization of lottery players, however, that astonishes me in its uncaring behavior:

Twenty percent of Americans are frequent players, spending about $60 billion a year. The spending is starkly regressive. A household with income under $13,000 spends, on average, $645 a year on lottery tickets, about 9 percent of all income. Aside from the financial toll, the moral toll is comprehensive. Here is the government, the guardian of order, telling people that they don’t have to work to build for the future. They can strike it rich for nothing.

First, the figure it astounding. (If it isn't varnished a bit through statistical magic.) Second, that 9% of income per poor family (which, again, I'm skeptical about) is spot-on the recommended saving allowance for a family; with that, people could move into retirement at least counting the same pennies they always have. Third, the assumptions are that people buy lottery tickets to become rich because they're too lazy to work to earn more than $13K/yr. Thus, they buy two lottery tickets a day instead of toiling for hours more to learn a trade.

What are his solutions? Raise awareness about debts through public ad campaigns and encourage thrift through church loans instead of payday loans, programs to increase access to financial planners for the poor, colleges restricting credit card ads on campuses, some specific program called "KidSave" to encourage our little ones in good economic habits, and a tax code that penalizes spending rather than saving. Warm and fuzzy all. Let's get together and save.

But here are the real problems: people don't necessarily buy lottery tickets to strike it rich. In fact, the ones I know who do are living comfortable lives already (i.e. they invest). Those who buy tickets because they don't have any money do so because they're hoping to stave off the debt collector not so they can rush out and replace their fifteen year old car or buy a splashy pink shirt and hot pink tie. No, they're hungry or would like the simple luxury of a movie tonight. And those dutiful savers who have IRAs? They aren't saving because they're crimping; no, they sacrifice by buying a new car every few years, perhaps driving their 5 year old car a year or two longer (if they have to). In other words, the "investing class" invests their excess luxury dollars while to ask the "lottery class" to invest their pennies takes away their smallest luxuries at best and their food at worst. Who can blame them for hoping that the lottery will offer them some small comfort, especially when most lottery payouts are under $100 -- which is a fortune when you're poor.

The re-inventing the tax code portion of this post really got to me because it incapsulates the economic mindset of our current administration: spending is bad -- without evaluating how people spend money. Spending excess amounts of money on stone altars for a one time wedding (cf: Jenna Bush's recent nuptials) might be the sort of spending we should tax, but should we tax food, gas and movies?

The real solutions to a society of "haves" and "have nots" (a more accurate parsing of American society if you insist on either-ors) is to provide education (which was intriguingly no where mentioned) and opportunity. Why are basic economics not taught in schools? It used to be under the rubric "home ec" and guiding students in basic financial well being would go a long way to developing responsibility. But, that still ignores the issue. While lack of education and financial acumen is part of the problem, there's only so much economizing $13K/yr will do. (That's less than $1K a month, btw.) 

We should pledge that people working 40 hours a week should not have to live below the poverty line. After all, how is it fair if both the "investing class" and the "lottery class" work the same number of hours, yet one can afford to invest and the other only to hope? And, yes, that might mean our restaurant food costs more money, or we have to pay more at the pump, and that we therefore have less money every month, but if we don't do this it means we are investing our wealth only by squashing other's abilities to invest.

update: For a nice antidote to Brooks' blatherings, check out Bob Herbert's column today (he hits the nail on the head by saying "job creation" -- those magic words) and Nicholas Kristoff any day. Both routinely exhibit a careful consideration of the actual nature of poverty and proffer real solutions for it.

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