So 20 years ago -- almost 20 years ago, I was working for a small social service non-profit
that provided homeless services and housing to homeless families.
And that is where I met a woman that I'm going to call Julia.
She was a single mother.
She had three sons.
She was living in one of our buildings.
Julia was actually -- we hoped a great success story.
So she had been couch surfing, doing a lot of what homeless families do in terms of moving
from unstable situation to unstable situation.
We'd gotten got her situated in a stable, permanent apartment; gotten her a job, a good
job as a janitor.
And it probably doesn't sound like much to you but this was a job that paid more than
twice minimum wage, had opportunity for advancement, and have benefits, including health and a
pension.
This was a good job for someone who had been on long-term welfare, didn't have a lot of
education.
There was a path to the middle class, which is what we want for the poor, right?
Ultimately, it's what everyone in this room -- it's what everyone in America wants for
the poor is a path to the middle class, to the stability and the destiny, the self-control,
the ability to control your own destiny, to build a place and a life for yourself.
And then -- so Julia was doing really well and then her sister lost her house.
Her sister had an infant son and Julia took in her nephew and then she quit her job and
went on welfare for nine months in order to care of her sister's son.
Nine months later, when her sister finally got stable, was able to take her son back,
there wasn't a janitorial job available.
The job that she got was at K-Mart.
It paid minimum wage, which was then $4.25 an hour, and there is pretty limited opportunity
for advancement from there.
And, you know, at the time, I was pretty judgy for a 22-year-old secretary who was still
living at home.
I couldn't understand how she had done this, how she -- how she could be so stupid.
I was like -- and I did what a lot of middle-class people do when they hear stories like this,
which is that I attributed it to bad -- she had bad judgment or maybe she didn't have
a good work ethic, poor decision-making skills, right, bad incentives.
It took me 20 years and writing a book about failures to understand that this was fundamentally
about none of those things, that fundamentally what she was doing was about capital and that
if we want to help the poor climb that ladder into the middle class, into the stable, bourgeois
life that everyone in this room enjoys, then we need to address this problem.
This is at the core of what opportunity and stability and the American dream is going
to mean for millions of poor people who are still trying to climb that ladder.
To see why, I want to take a little detour into the rain forests of Paraguay.
I swear to God this is going somewhere, so please bear with me.
So in Paraguay, there is a tribe called the Aché, and they have been there for a very
long time, for longer than we have written history.
And for most of that time, they have been foragers, what you probably think of as hunter-gatherers.
So hunter-gathers are really interesting because hunter-gatherers share a lot.
They share way more than we do which is interesting because you think about this is the first
kind of lifestyle that we adopted after we evolved into humans, and chimps don't share
at all.
But the hunter-gatherers are basically the most sharing societies that we know.
There's actually a reason for this.
Instead of property, what they have is what you call reciprocal altruism.
So you can see this in our own life is, say, your mother asks you to pick up a gallon of
milk for her on the way home.
When I go to the grocery store and I pick up a gallon of milk, I don't send my mother
a bill, right?
I just figure she's going to get me back later at some point.
I'll need eggs, she'll bring them by, et cetera.
That's reciprocal altruism and everyone does it a little bit.
You do it within your family relationships mostly, maybe for friends or coworkers.
But for us, these relationships are very narrowly limited and they're also small-ticket items,
right?
Very few people are like, hey, mom, I bought you car.
No need to pay me back.
You'll just get me later.
But for the Aché, it's much more central.
For hunter-gatherers in general, it is much, much more central to their social and economic
life.
So here's the interesting thing.
The Aché actually had to stop being foragers for the same reason that a lot of indigenous
people have had to -- it takes a lot of territory to support a forager, and as farmers encroached
on the rain forest, they ended up having to settle down to be farmers.
And when they settled down -- and for my book I interviewed an anthropologist who watched
this process, who worked with the Aché during this process -- when they settled down to
be farmers, they stopped sharing so much.
The Aché were actually even among foragers remarkable for the degree to which they shared.
They had a norm that men could not eat meat that they themselves had killed.
They told -- they told the guys that if they did, they would -- they would lose their ability
to hunt, which I guess is kind of like telling an American guy that you're going to lose
your ability to watch the Super Bowl, and so they shared.
They never ate from their own kill.
They shared widely with people who were not in their family circle, who were in their
larger band of about 50 people that they were -- 50 to 150 people they'd been living with.
So they settled down and then they stopped.
They're still going into the forest, but gradually they're sharing less, and on the farm they're
sharing even less.
And Kaplan had a theory for this.
So, first of all, he said, it failed for the reason that collective farms fail.
If you look at the Plymouth colony or for that matter Russia, collective farms didn't
work for much the same reason.
They would ring a bell to gather people together to go into the fields the way that they had
tried to go into the forest and, as Kaplan said, no one turned up.
So, instead, they ended up with property rights in a span of 10 years, a value that was as
important to them as the American value of like that's my lawn and don't step on it unless
I give you permission, although I think it is legal to invade your neighbor had dandelions
-- or should be.
But, in general, this was a value that was just as sacred to them as property rights
are to us and it changed in 10 years, in a very brief span of time.
Why?
Kaplan had a theory about this that rings true and that he's actually subsequently tested
in experiments, which is that sharing is appropriate to foraging and it's not to farming.
And here's why.
So think about how a hunter works.
You're hunting a seal right?
You go to an ice hole and you wait for a seal to show up.
You can be the best hunter in the entire world, the superman of foraging or hunting; if a
seal doesn't show up, you're not going to eat today.
Meanwhile, your friend, who's a mile and a half away at a different hole, may have hundreds
of thousands of calories more than he and his family could possibly consume.
What Kaplan is saying is that sharing is like capital.
It's saving.
When you live at a subsistence level, where you can't save because you can only take what
you can carry with you, what you have instead is this form of social insurance.
I give you something now; I share my food with you; later, when I need, you will share
with me.
It's an open-ended obligation.
It's bilateral.
This is really, really important.
So, okay.
What does this have to do with Julia, you may be asking?
The poor in America have very limited financial capital -- basically none.
If you look at the bottom sort of half of American society, to a first approximation,
they have zero net wealth.
So when you hear the statistic that the Waltons have more wealth than like the bottom 40 percent,
congratulations -- most of you do too.
So as long as your assets exceed your liabilities by $1, you're doing better than about the
bottom quarter of American society.
So what do you need when you don't have any financial capital?
The irony of being poor in America is that it's a lot easier to be poor if you have a
little bit of capital.
You don't need much.
But a little bit of capital can do things like give you the deposit on an apartment
so that you don't have to rent a motel room by the night or the week, which is much more
expensive than monthly rent.
And you do things like help you buy a car so you can get to a better house and better
school district in the suburbs or to get to a job in the suburbs if you live in the city.
It can let you buy a reliable $8,000 car instead of a $500 car that needs $1,500 worth or repairs
every four months.
Have you ever seen that house that has like five beat-up cars parked in the driveway instead
of two pretty good condition ones?
The people who own those cars aren't stupid.
They have those cheap cars because they didn't have enough money to buy a reliable car and
they need five to make sure that one or two will be ready to take them to work when it's
time to go and actually running.
Having capital allows you to have Costco membership and maybe buy a chest freezer for the 900
pounds of pork butt that you will inevitably bring home when you get a look at their meat
freezer.
It also allows you to do things like buy dental care and clothes that can enable you to get
a better job.
But, most importantly, probably, is having a small amount of capital protects from having
to pay $200 worth of overdraft in late and reactivation fees because your budget was
$100 short this month.
These are persistent features in the life of the poor that having no capital is very
expensive and it's especially expensive once something goes wrong.
But here's the thing: Julia and millions of other poor people don't have no capital.
They have no financial capital.
They have a lot of social capital.
In the same way that farmers didn't need as much social capital as foragers did, middle-class
people don't need as much reciprocal altruism as poor people do because they have financial
capital that sees them through those down times.
And you can see this, if you think back to, say, an immigrant community, like Little Italy
at the turn of the 20th century.
I mean, these are -- these are people who are living in situations and conditions that
are worse than anything that the 21st century has to offer.
And yet, they survived and thrived with social bonds that are so strong that these people
are still having, you know, Sunday dinner at each other's house once a week -- that
their descendents are doing that.
These bonds are incredibly strong and incredibly powerful, but they are also dangerous because
here's the thing: there's a tradeoff between financial capital and social capital.
Let me explain -- so let's go back to Julia's situation, what did she do?
She gave up a good job because her sister called on her.
I thought that was a dumb decision.
It was not.
In the context of poverty, that is a very smart decision.
You are banking favors that you can then withdraw later, and that is critical if you are going
to be living with too little money.
And that is why gentrification and even tearing down housing projects, where everyone complains
about the terrible conditions, is so disruptive to the life of the poor because these networks
are not just family based.
They're also neighborhood and location based.
And when you displace people from those locations, you are destroying a major financial asset
that they use in place of a fat bank account.
You are taking away some of their social capital and also force them to move, which people
don't like.
But the loss of those networks and the attenuation of those networks is incredibly difficult.
Here's the thing now: these networks can be tradeoffs for each other, because what happens
when people try to leave?
So think about the choice that you have to make in order to leave behind one of these
networks, in order to try to be upwardly mobile to get your hands on the American dream, the
capital.
You see this with, for example, the callers to financial call-in shows where you get a
lot of upwardly mobile middle-class people saying, look, I've got -- I went to college,
I've got a job, and I'm trying to save for a house and I can't because my sister's light
bill got -- you know, I need to pay her light bill because her electricity was shut off,
et cetera, and I can't save enough money; I'm barely making my rent.
What do I do?
This is that contrast between social capital and financial capital.
Just as when you have one you don't need as much of the other, having a lot of one makes
it difficult to achieve a lot of the other.
This becomes a huge barrier for people, upwardly mobile college students, which is why you
hear so many stories about college students, too many who have to leave because a relative
at home has claimed their time, because a boyfriend at home misses them and wants to
get married immediately.
Those bonds are very strong.
And when -- while middle-class people tend to treat this as an ethic of irresponsibility,
it's not.
It is an ethic of profound responsibility to the other people in your life.
It is an ethic of charity and of duty and loyalty.
When we overlook that, we're overlooking one of the major barriers to advancement towards
the middle class for poor people.
The problem is that capital wants to be accumulated.
Capital is most useful in large amounts -- financial capital.
So the money for tuition, the money for a house down payment, the money to buy a car,
those are large amounts of capital and that's when they are the most powerful.
Social capital is most powerful when it is distributed.
And so what happens when you put capital into these reciprocal altruistic networks is that
it tends to dissipate so that it's not doing anyone too much good.
And this is why, for example, you see lottery winners and pro athletes -- shocking numbers
of them are bankrupt five years after they leave the pro leagues or after they won the
lottery.
And this is usually portrayed as like, wow, they just blew it all on -- I don't know -- four-wheeled
vehicles, whatever it is that young men buy when they get their hands on a lot of money.
And that's like part of it, right?
If you give young men a lot of money, they will blow it on weird things.
But when you actually listen to the stories, a lot of it is friends and family that they
didn't feel they could say no to, because think about it.
If you leave and you say no and then you don't make it, what happens?
You just blew your social capital bank account.
You don't have a financial capital bank account and now you're much worse off than you used
to be.
And so how do we bridge that?
I'm sounding now like a counsel of despair, but it's not because there are programs, private
and public, which have helped address this problem, and if we're being smart about it,
I think that we really can -- we can build policy that is better about helping people
accumulate the financial capital and become less reliant on these social networks that
are very valuable for poverty, but make it difficult to enter the middle class.
So private, Habitat for Humanity -- now, they're not perfect but they do a pretty good job
at getting people into long-term homeownership, and that doesn't just mean the joys of owning
a home, which I'm sure we can all attest to; i.e., fixing the boiler when it goes bust
at 3:00 a.m.
No.
It actually functions as financial capital.
So a shocking number -- if you've studied entrepreneurship at all, a shocking number
of new businesses are financed by Visa, MasterCard, and home equity loans, or tuition.
It becomes that asset that then passes on to other generations that can use that to
seed new investments.
How do they do it?
So, for one thing, they work really strongly with the people, with credit counseling, getting
them from a now mindset, a need mindset, to a savings, a later mindset.
That's a big transition to make.
And it's hard to make and so they counsel people on how to save, how to get their credit
in order and so forth, but they also have people putting in sweat equity, which brings
the organization and also kind of the house in a way into that reciprocal altruistic network.
It's easing the transition instead of trying to tell people, jump all at once and if you
fall off the ladder, well, too bad.
Public -- so the EITC -- we all -- most people in the room know about this, right?
This is a tax credit for people who are working.
And one of the interesting things about it is that it comes in a lump.
I think you can get it monthly, but no one does this.
They get it in a big lump.
And it becomes micro-capital.
It becomes the funds for that apartment deposit so that you're not paying a motel.
It becomes the funds for a car that can get you to the job in the suburbs.
This is also true of income tax refunds for the working poor.
And what's funny is, you know, you can try to tell people this is a rational and interest-free
loan to the IRS, adjust your withholds so you don't get a big refund.
And they said, no, they like.
It's forced savings for them.
And what that does is prevent the capital from disappearing into the reciprocal altruism
network because if it's going out constantly, it will enter the network and slide out.
Only when -- only when it comes in a lump can it be accumulated to make an investment.
So the third is the MyIRA, President Obama's proposal.
We haven't done it yet, so we don't know if it works, but I'm hopeful.
Again, why?
Because it's automatic and because it puts the money out of reach of that altruistic
network which, again, I don't want to denigrate.
It's incredible valuable and important but is a barrier to middle-class entry.
So what do these things have in common?
So, for one thing, they're reciprocal, right?
You have to work to get the EITC.
You have to work to get the house.
That's really important, that helps build this ladder to the middle class.
The second thing is they're mandatory.
They put the money out of reach so that the network can't have it.
And one of the interesting things about microfinance is that we used to think of it as about investment
in businesses and now it turns out a lot of it is about saving for people who can't save,
again, because they're poor and because the money will dissipate.
And the third thing is that you're helping in the way that the GI bill helped launch
a lot of those poor immigrants we talked about at the beginning into the middle class.
You're helping people make investments.
We can build policy that does more of it, but we have to start by really thinking seriously,
by recognizing the barriers that social capital forms to financial capital, being respectful
of the fact that these are core, fundamental values for the people who are in the networks,
and that you have to understand that these values are as important to them as your values
are to you.
And by helping people to bridge that transition so that they are less reliant on social capital
and more able to access, form, rely on it, and increase financial capital, we can do
this.
Millions of immigrants have done it.
Their descendents are all living in the suburbs now or in nice row houses on Capitol Hill.
Million of immigrants have done it.
Millions more can.
We can help the Julias of the world get out of a place where she needs to quit her job
in order to help her sister out and in a place where everyone has enough to tide them over
those catastrophic crises.
And, with that, I will close.
And thank you.
Thanks for watching.
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