In praise of poverty: or a short enquiry into the misery of being born into riches

Watching the playful First World Country (FWC) kids subconsciously reminds me of the dire situation of the kids in the Third World Countries (TWCs). I usually envy the kids born in the FWCs and I am sure many of my TWC fellows share my feelings. Perhaps, the source of that feeling is the initial endowment that children of FWCs possess.

But today, I paused for a minute and thought that I might have been wrong all my life. Perhaps it is not that great to be born and raised in a FWC. Why? I will attempt to explain my doubts using the marginal utility theory.

Regarding basic necessities of life, if you do not possess any item which is necessary for your livelihood, by acquiring that item, its marginal utility will be equal to its total utility. However, as you get additional items, starting at some point, although the total utility increases, their marginal utility (and hence the total utility) grows less rapidly or decreases (diminishing marginal utility).

As we know, what matters in decision making about producing or acquiring something is, to a large degree, the marginal utility, not the total utility. When you are born into riches, you take the initial endowment for granted, and you will not enjoy the total amount of the goods and services at your disposal. In other words, the total utility that you derive from the initial endowment nears zero.

Now, with that brief introduction in mind, let’s assume that the tipping point at which the marginal utility becomes zero is $5000 of earning per month. Now, compare a kid born in a TWC endowed with $50 per month (monthly amounts that his parents can spend on him) with a kid born into a family in which the initial endowment is $4000.

Although the total utility that the FWC kid derives from $50 is not comparable with the total utility of the kid blessed with $4000, there will be a huge opportunity for marginal improvements for the TWC kid spread across all dimensions of his life that can still bring him utility ($4950). In contrast, the utility-bearing income for the FWC kid is limited to $1000. In other words, the poor kid has a long way to go until the saturation moment or the tipping point at which the marginal utility starts decreasing. So, if happiness comes from marginal utilities derived from the potentials embedded in life, the TWC kid will potentially be happier than the kid born into riches.

Moreover, the likelihood that that FWC kid might increase his monthly income from $4000 to $5000 is slimmer than the likelihood of the poor kid increasing his from $50 to $5000, because of the headwind problems that we all face when we cross certain lines in income, technological advancements, and even in civility.

From this point of view, the poorer you are, the better off you potentially are, if and only if the society in which you live provides you with the basic infrastructure for climbing up the ladder. Based on this analysis, from social optimality standpoint, gains from investing in improving socio-economic mobility are much higher than I initially perceived.