American government developed welfare policies with best intensions to protect most vulnerable members of society as single mothers, chronically unemployed, etc. It tuned to be a disaster – in some parts of the society many generations were living on welfare, young women produced kids out of family to be able to receive welfare payments and in some cases it was economically beneficial to break a family at least on paper to receive welfare.
Welfare payments were not sufficient to sustain living - black labor market emerged, where people were working off books.
It was difficult for a person to get on welfare the first time – brokers emerged, who use their knowledge and connections to overcome this barrier for a fee. On the way the segment of government, which was handling welfare, was corrupted.
When large number of people became enrolled in welfare, they become important political constituency – politicians started representing their wishes, thus perpetuating and enforcing the status quo.
Economic barriers to getting out of welfare emerged. A person, who dared to move from welfare to work, faced decline in living standards – absence of health insurance, low wages. Businesses were suspicious of people, who were on welfare, of their work habits, honesty, attitude, etc. and were reluctant to hire them.
Eventually, the government had to restructure the welfare system to prevent the most egregious abuses and to encourage people to start working instead of relying of welfare.
It was called “unintended consequences”, but it should be called inaptitude in setting and managing a new social system. This happened because people who did it did not understand the mechanism of social functioning.
They did not understand the phenomenon of stable states of society – social niches.
In many cases, division of a society into groups is obvious. Sometimes such division is legally enforced, but in modern society, boundaries between groups are rather invisible, but real nevertheless.
This division precipitates the phenomenon of “social climbing”, where a person makes considerable efforts to move to a more advantageous group. This is done through substantial achievements in business or culture, through strategic marriage, etc.
Economic and social crises often cause massive movement on opposite direction, into less advantageous group.
When a person belongs to such social group – a Social Niche, a person develops perception of higher “worthiness” of own Social Niche in comparison to other Social Niches. It could look strange or even ridiculous to an external observer, but this is normal behavior. This is simply reflection of stability of the Social Niche.
A Social Niche is stable, when it takes considerable efforts to get into it or to move to another Social Niche. Barriers between Social Niches are economic and psychological.
A Social Niche of rich people is obvious and it is a subject of fascination in a market-based society.
Rich people are those, who do not need to work to sustain comfortable life now and in a foreseeable future. Usually they own some assets and businesses, which provide steady stream of income or they have some other means to receive such stream of income.
Being rich does not mean being happy and does not mean not working. Many rich people are unhappy and some rich people work a lot, sometimes more than not rich people do.
Rich parents make sure that their children belong to the same Social Niche and it is very difficult to get into it from outside. This makes the Niche extremely different from other Niches.
Stupidity and unforeseen events, as socio-economic crises, kick some members of this Niche out. For some this becomes a severe psychological trauma, some find energy to clime back.
Rich play important role in a market-based society. They develop new desires. These desires are satisfied at considerable cost. Some of these desires propagate to the rest of the society in slightly modified form. To satisfy them a new mass product or service is created. Thus, market expands and overall wealth of the society grows.
In middle ages in
In democratic society one does not legally inherit the membership in a group of people who hold political and economic power, but usually it happens through connections and careful preparation.
The entry barriers are high, but with skill it is possible to get there. In a market-based society, Powerful are often rich, but their desires and behavior is mostly defined by the drive to expand their power.
In any society there is a Bottom Niche – a
place easy to get it and difficult to get out. In the
There is a group of people, who have little reserves.
They are subsistent farmers, who starve, when crops fail. They are workers, who starve, when they cannot find a job for a couple of month.
This life at the edge often shapes their perception and behavior.
In a civilized society, there is a support system, which softens the suffering in cases economic downturn, but they do not change the subconscious awareness of the danger and limited room to maneuver.
When they sell fruits of their labor, they have to accept low prices; when they sell “the use of skills and time”, they have to accept low wages.
When the wealth of the society grows, they participate in it only partially. When it contracts, they are first to suffer from it.
Those who manage to accumulate reserves acting in the ways unusual for members of this Social Niche manage to migrate to another Niche, but this is economically difficult – incomes in this Social Niche are barely sufficient to cover needs; wages and prices on shelter, food, transportation, etc. are at balance exactly at the point, where wages are barely sufficient to cover people’s needs (in that particular society and that particular time).
Usually, members of this Social Niche are numerous and their marginal existence and consequent resentment attracts demagogues seeking political power. The society often reacts to it with a mixture of measures of appeasement and oppression. This is a vicious cycle, which stabilizes the Niche and destabilizes the society as a whole.
The better solution would be enabling migration from this Niche to other, more advantageous Niches of the society. This is done through good education of children, which facilitates social mobility, and through perpetual adult education, which allows acquisition of new skills and improvement of income. The focus should be on elimination of the basic limitation, which causes this Social Niche; the focus should be on improvement of ability to compete.
There is wealth disparity between Niches and it grows. There are a few causes for it.
Expansion of the wealth of the society has periods of exponential growth. If one takes two persons with different initial wealth, the gap in wealth between them increases in absolute and in relative terms, in such periods. This is the nature of the market. The healthy way to decrease this gap is not through depriving the one, who has more, but through exploiting new opportunities with higher rate of expansion by one, who has less.
In the periods of contraction (recessions), due to mistakes or bad luck, some have their reserves reduced or even wiped out. This pushes them into a less advantaged Niche, from which it is difficult to clime back. A recession causes mass migration toward less advantageous Niches – redistribution of number of people between Niches and hence relatively fewer people in advantageous positions.
This is how the market-based society functions. It is needed to prevent accumulation of mistakes.
Hence, in a market-based society one has to pay close attention to reserves, protect them and minimize their use at economic contraction.