The International Bill of Human Rights recognizes a universal entitlement to “the continuous improvement of living conditions.” A dignified existence is a common concern of modern civilization and of the social sciences. But the mindset that emerges when we have too little creates challenges that often impede the improvement of living conditions. Poverty is a shortage not merely of financial resources but of cognitive resources as well. When people are preoccupied with budgetary concerns, they have fewer mental resources to devote to other things. For the more wealthy, everyday budgetary considerations represent manageable intrusions. The wealthy have slack in their budget and can manage unexpected expenses with relative ease. The poor, on the other hand, have little slack: unexpected expenses require giving up essentials, like rent payments or utility bills, and making frequent and difficult tradeoffs. The frequent challenges and heightened stakes eat up comparatively more of the poor’s mental resources, leaving less mind for other problems.This Article employs a suitcase metaphor for people’s budgeting. The wealthy have a “big suitcase” which allows them to pack modest items casually. The poor have a “small suitcase” which must be packed intently and with great care. The packer of a small suitcase must carefully consider the size of each new item, and what can be removed each time they want to put something in.The Article describes the results of empirical research done by the author and his colleagues into decision making under conditions of plenty and of scarcity. Among the topics examined in the studies are the impact of easier versus more imposing financial challenges on cognitive capacity, the psychology of borrowing, and the potential impact of financial concerns on other, nonfinancial behaviors.Scarcity impacts a person not only directly, as wants or needs go unfulfilled, but also indirectly, as we struggle to make do with less. Persistent financial concerns impose a cognitive load on a limited bandwidth, which can impinge on other aspects of life, and can create poverty traps. The solution for alleviating the problem cannot be to reduce the already modest needs of the poor, nor to try to increase our inherently limited bandwidth. When the suitcase cannot be enlarged through higher wages or wealth transfers, the next option is to facilitate packing. By creating a more reliable, stable, and forgiving context, which the wealthy already enjoy, the everyday management of life under scarcity can be made easier, some bandwidth liberated, and costly mistakes and their menacing consequences reduced. This approach may bring us closer to the delivery of the universal entitlement to “the continuous improvement of living conditions.”
The full text of this David C. Baum Memorial Lecture is available to download as a PDF.