Freud's class bias

Lord Freud says:

People who are poorer should be prepared to take the biggest risks; they’ve got least to lose.

This seems ignorant of basic economics and psychology. Yes, the poor have less to lose. But the little they have is more important to them. A loss which means you don't eat is more painful than one which means you can't replace the Merc this month. That's the diminishing marginal utility of wealth. For this reason, we should expect the poor to be less prepared to take risks than the rich. And the econometric evidence seems (pdf) to roughly support this.

Granted, the poorest 10% spend proportionately more on gambling than the rich - but it accounts for only around 1% of their overall spending compared to less than 0.2% for the better-off (table A6 here). And some of this difference, I suspect, reflects the fact that the rich gamble on better odds (eg spread bets versus the lottery) and so reduce their net spending, and also do some of their gambling by buying shares. The facts that the City is "rife" with gambling addicts, that horse-racing has traditionally been "the sport of kings" and that Monaco is renowned for its casinos tell us that many of the rich have long been tolerant of risk. Which is consistent with diminishing marginal utility of wealth. 

Why, then, is Freud making a claim which has such a suspect empirical basis?

Class, that's why. Take these statements:

The rich should take more risks. They should use their wealth and their so-called skills to set up new businesses and create jobs, rather than stay in cushy rent-seeking jobs in management and finance.

The problem with the rich is their selfish reluctance to pay tax. They should be more responsible citizens with better tax morale.

Such views are not often expressed by the likes of Freud.This is because of a class bias. Rulers often see the attitudes and behaviour of the poor as a problem to be solved by exhortation and policy, whereas the attitudes of the rich are givens, to which governments must adapt. Hence Freud's hectoring of the poor but not the rich.

This asymmetry is an old one; I suspect you could find it in ancient Rome. Here's C.B. Macpherson on the 17th century:

The Puritan doctrine of the poor, treating poverty as a mark of moral shortcoming, added moral obloquy to the political disregard in which the poor had always been held...Objects of solicitude ot pity or scorn and sometimes of fear, the poor were not full members of a moral community...But while the poor were, in this view, less than full members, they were certainly subject to the jurisdictions of the political community. (The Political Theory of Possessive Individualism, p226-27)

There's not been much intellectual progress in these last few centuries.

Comments

[Ralph Musgrave]

In some ways the poor already do take big risks, and offload those risks onto the taxpayer, just like banks do. For example third party insurance is compulsory for builders, but does anyone seriously think that people on benefits doing building work on the side are fully insured?

[Sam]

But the poor do take more risks. There are any number of dishonest poor people who take significant risks in committing crime - burgling houses, stealing copper from power stations and so on - in exchange for relatively slim rewards.

The dishonest middle-income types take the rather smaller risks of fiddling their taxes or inflating an insurance claim. People with decent steady jobs don't steal lead from church roofs, because if they get caught, they lose everything.

[Rahul]

I wonder how the issue of tax expenditures vs transfers plays out here. The former is mostly regressive, the latter mostly progressive. I'm guessing that Lord Freud feels he can exhort the poor because they are recipients of tax transfers. But he would not feel the same about the rich, recipients of tax expenditures because somehow that isn't viewed as real money! I'm guessing that mental accounting plays a big role here.

[john malpas]

meddle, meddle,meddle

[JayneLinney]

The Tories denial of Class allows this prejudice towards the Poor to continue today.

Great Post

[John H]

It seems that quote may be unfair on the Puritans. According to Kirk F. Koerner's Liberalism and its Critics (1985, found via Google Books):

'There is almost no historical warrant for [Macpherson's] sweeping generalization. Jordan's historical researches into philanthropy in England have established that there was, in fact, no hardening of contempt for poverty in the period 1480-1660. In the literature of exhortation Jordan finds what he goes so far as to call a "drumfire of exhortation" stressing the moral obligation of charity, the righteous quality of Protestant good works, and the evils of covetousness.'

In other words, it seems that, if anything, we have /regressed/ since the Puritan era in our attitudes towards poverty.

[John H]

However, on the substance of your post: totally agree. See also Philip Blond recently quoting a child psychologist, John Bowlby, that "life is best organized as a series of daring ventures from a secure base."

(See http://curlewriver.wordpress.com/2012/09/26/plebgate-and-the-new-snobbery/ )

[John H]

Oops, that was David Brooks, not Philip Blond. Can't even read my own blog posts properly. OK, will stop spamming your comments now... ;-)