Would a Big Bucket of Cash Really Change Your Life? A New Freakonomics Radio Podcast

(Photo: epSos .de)

(Photo: epSos .de)

Why does poverty persist? Is economic mobility still a real part of the American dream? And if you gave every poor family a big bucket of cash, would it substantially change the trajectory of its future?

Those are some of the questions we ask in our latest podcast, “Would a Big Bucket of Cash Really Change Your Life?” (You can subscribe at iTunes, get the RSS feed, or listen via the media player above. You can also read the transcript; it includes credits for the music you’ll hear in the episode.)

It attempts to answer an e-mail we received from a reader named Thomas Appleton:

What would be the socioeconomic effects if the 50 wealthiest Americans each gave $50,000 to 50 different American families, repeating this practice annually with new beneficiaries? How about if these families were targeted in a limited area; say, across some of the poorest neighborhoods in Brooklyn?

As we explain in the podcast, even if we could get 50 wealthy people to give $50,000 to 50 families every year, we’d have to wait a long time to measure the long-term effects. So wouldn’t it be great if, somewhere in history, something like this already happened – that there’d been a huge cash giveaway that produced a magical dataset that some scholars could analyze in order to answer these questions?

Enter Hoyt Bleakley and Joseph Ferrie, economists at, respectively, the University of Chicago and Northwestern. They are the authors of a fascinating new paper called “Shocking Behavior: Random Wealth in Antebellum Georgia and Human Capital Across Generations.” In the podcast, you’ll hear Bleakley describe an 1832 land lottery in Georgia that randomly rewarded roughly 20 percent of its participants with a big, valuable tract of land. Pairing this data with U.S. Census data, Bleakley and Ferrie were able to see what happened to these newly wealthy families — if, for instance, their children became more educated, and were more successful down the road.

So what happened? I’d tell you the answer right here but I know how much you love to be surprised. Also: you guys are so sharp that I’m guessing you’ve already guessed the answer by now. If you need a hint: think about what happens to modern lottery winners.

While the Georgia land lottery happened a long time ago, the research findings could hardly be more timely. Income inequality is a huge concern these days, as is the question of whether cash transfers –  conditional and/or unconditional — are a viable means of lifting poor families out of poverty. I cannot say this podcast will necessarily change your mind if you have a deep-set opinion about the wisdom of cash transfers, but it is certainly good to hear about the long-term evidence from such a large-scale intervention.

Feedback welcome, as always. And thanks, Thomas, for kicking off a good conversation.

Audio Transcript

[MUSIC: Louis Thorne, “La Sauterelle”]

 

Stephen J. DUBNER: The other day, we heard from a Freakonomics Radio listener named Thomas Appleton. He’d been talking with a friend about giving money to charity, and he had this idea:

 

Thomas APPLETON: I was wondering what would be the socioeconomic effects if the 50 wealthiest Americans each selected 50 needy American families and gave each one a one time gift of $50,000 and repeated the process every year with new beneficiaries? And what if these efforts were concentrated in, for instance, some of the poorest neighborhoods in Brooklyn?

 

DUBNER: That’s an interesting question. In economic terms, Thomas is asking about the effects of a geographically concentrated, one-time unconditional cash transfer – and whether, for instance, it will lead to real, intergenerational income mobility. (Although the way he put it is, I admit, much more exciting.) Alright then, why don’t we try it? Let’s see, 50 families, $50,000 each  – that’s $2.5 million a year. So who out there wants to fund our experiment? Hello? Anybody? Nobody? I guess this is what happens when you give your podcast away for free: nobody wants to pay for anything any more. All right, then, we’ll have to find another way to answer Thomas’s question.

 

[THEME]

 

[MUSIC: Pearl Django, “Saskia” (from Modern Times)]

 

ANNOUNCER: From WNYC: This is FREAKONOMICS RADIO. Here’s your host, Stephen Dubner.

 

DUBNER: Okay, so here’s the question we’re trying to answer today: if you’re thinking about helping poor families, how effective would it be to simply give them a big pile of cash? Would that change the course of their trajectory over time? Giving away $50,000 may sound like a lot of money, but if it means helping not only this one family but the next generation, and the next, it’s probably a bargain, right? Now, there are a couple of problems with trying to answer this question. The first is that none of you are willing to give me $2.5 million to fund the experiment. But there’s also this: in order for it to be an experiment, we need to randomize who gets the money – which also means having a control group, so we can measure the effect of the money.  And also, we need a lot of time. Even if we could give $50,000 to 50 families today, we want to see the long-term effect of that money – how it affects their children and their grandchildren. So wouldn’t it be great if, somewhere in history, something like this already happened – that there was some magical dataset that a couple of scholars could analyze, and write a paper that answers these questions … ?

 

Hoyt BLEAKLEY: The paper is “Shocking Behavior: Random Wealth in Antebellum Georgia and Human Capital Across Generations.”

 

DUBNER: Well hello! That’s Hoyt Bleakley.  He’s an economic historian at the University of Chicago, currently a visiting scholar at Princeton. He did this research with Joseph Ferrie, an economist at Northwestern.

 

DUBNER: So the shocking behavior that we’re talking about is the shock to the system, which is this lottery, this land lottery that happened in Georgia in the early 19th century, yes?

 

BLEAKLEY: That’s right. So there’s sort of a little known fun fact from antebellum days which is that the State of Georgia opened up almost three quarters of its territory to white settlers through a system of lotteries, as in actually pulling names out of a barrel to randomly give out land rights.

 

DUBNER: Now, this land we should say had been confiscated from the Indians, right?

 

BLEAKLEY: That’s correct. So that’s the less fun part of the fact, which is of course this happened because of the displacement of the Cherokee and the Creek. And in fact this particular episode we look at is what gave rise to what’s called the Trail of Tears where the Cherokee were force marched to Oklahoma under some depraved circumstances.

 

DUBNER: Okay, so the government of Georgia had a lot of land, and they used to give land away in a different way, right, a somewhat less random way?

 

BLEAKLEY: That’s quite a lot less random, something that looks a lot more similar to the way it had been done for much of the east of the U.S., which is to say that they would issue grants, or they would have people go out and claim land, and they would be entitled to a certain claim, but they would also have to show evidence that they’d done something with it.

 

DUBNER: Got you, so I could say I’ll commit to farming this land and hiring certain people if you give me the land, something like, some kind of contract like that.

 

BLEAKLEY: Yeah, that’s right, some evidence of having done something with it. That’s right.

 

DUBNER: Okay, and why did this lottery come about? What precipitated the need?

 

BLEAKLEY: Well, so take yourself back to that map that you may have seen in 11th grade in high school history where the colonies, you know, the new states were claiming land all the way out to the Mississippi. You might have seen this thing where there is a super elongated map of New York, and Georgia, and Virginia, all claiming out to the Mississippi. So some enterprising set of gentlemen decided that they were going to start selling that land that Georgia was claiming, opening it up for settlement. And the way they did this was they basically bribed a majority of the legislators in Georgia to make this happen. This generated such a scandal because in part it wasn’t clear Georgia actually had title to this land, you know, was legally able to give out the land. Eventually they gave it up. This land was in the state of Mississippi eventually. But further it generated such a throw-the-rascals-out movement that when they came around to allocating the part of the state that really was part of Georgia, politicians opted for what they viewed as the most incorruptible, the most transparent mechanism possible. And they came upon the lottery as such an idea. And so they went and surveyed the land into a bunch of parcels, set out a grid. And after that time they started pulling names out of barrels. And essentially every white male who had lived in Georgia for a few years was eligible to participate. And there was so much money on the table from participating. Right? It cost you 12 cents to register.

 

DUBNER: And could you by more than one ticket, or everybody could have just one?

 

BLEAKLEY: No, this was, don’t think that his was go to the store and buy a ticket. It’s simply...

 

DUBNER: It’s not Powerball.

 

BLEAKLEY: No, you’re basically eligible for one registration. And we estimate that approximately 100 percent of the people registered.

 

DUBNER: Wow, okay. So if we forget the fact, or deny the fact that the land was confiscated from Native Americans, then this is a pretty equitable way to distribute the land, yes, in that it’s not giving advantage to people who either have a, you know, corrupt legislator in their family, friendship, or whatnot, right?

 

BLEAKLEY: Yeah, I mean you could say that, at least ahead of time it’s an equitable way to do it because everybody gets the possibility of winning. Of course some people win, some people lose, which ends up being central to the way we, you know, perform our research.

 

DUBNER: Okay so tell me just a quick couple facts about this. What share of, you said that there was virtually 100 percent participation because it was pretty much free to sign up to try to win some land. What share of people then won? What were my chances of winning?

 

BLEAKLEY: Yeah, so it was little shy of 20 percent of the people won.

 

DUBNER: And then how much land are they winning, and I want to know what that land is worth. And I also want to know how I can convert that land into value. In other words, can I sell it right away or do I have to actually go and farm or build something on it?

 

BLEAKLEY: Sure, so in the particular one we analyzed, they were winning 160 acre parcels in the northwest part of Georgia, so think Atlanta and to the northwest of that. We estimate that they were winning numbers in the hundreds of dollars, maybe $500 to $800 dollars if you value this in 1850 units which is when we observe them.

 

DUBNER: Let’s put that in constant dollars then. It’s worth roughly what today?

 

BLEAKLEY: Well, it’s worth a lot. It’s worth a lot in the sense…It’s a little bit hard to convert that into a number today because prices are so different so let me give you two ways of thinking about that. One is that’s pretty close to the median level of wealth. You know, think about a bell curve of wealth. We’re basically taking some amount of money that’s approximately equal to where half the people are above and below that, of the non-winners.

 

DUBNER: And you’re saying that’s total wealth, all their assets would be worth that much?

 

BLEAKLEY: Well we don’t observe you know if they own stocks or bonds, or something like that, but essentially everybody either had their wealth either in land or slaves, and that’s what we do observe.

 

DUBNER: Ok. So in other words, if I am essentially penniless, but I happen to be a white male living in Georgia for a few years and therefore I’m entitled to enter this lottery, I can overnight have the same amount of wealth that is the median wealth in Georgia?

 

BLEAKLEY: That’s right.

 

DUBNER: So for certain people then it will be a life-changing event, not for all but for some, yes?

 

BLEAKLEY: It should be, yes, that’s right.

 

[MUSIC: Jonathan Geer, “Draggin The Bow”]

 

DUBNER: Okay, so it’s 1832, and the state of Georgia is giving away a bunch of land via a lottery. Roughly 1 in 5 people who enter the lottery will win. Economically speaking, it’s a pretty substantial windfall. And for a pair of 21st century researchers, it’s a pretty big windfall too. This kind of organic randomization, it’s what economists call a natural experiment. It doesn’t happen every day.

 

BLEAKLEY: I’m a big fan of the libraries that are run as open stacks where you can kind of walk up to the books and you can look at them and pull them out, and you can smell them and everything. You know you get up close and personal with them because a lot of stuff, good stuff, happens by accident. And in this case, I’ve done a lot of work looking at the economic history of the southern U.S., which has put me in that part of the library and I've seen references to the lottery system of Georgia, which for a while I just thought, well what could this be, this is some sideshow, I don’t know what that is. But I was walking past the Georgia section at the University of Chicago library at some point and see this title that says “The Cherokee Land Lottery,” big, thick book, walking past it. You know how this is, your brain, it takes a second for you brain to tell you legs to stop moving. And so I finally, a couple stacks down I turned around and said I got to go look at this book. I pulled this book out and there are a series of these books about the lotteries that describe the participants’ names, actual winners, what they won, that sort of thing. And at that point, you know, I was stunned. Can this really be that they randomized wealth? And I got on the horn with Joseph Ferrie, who is my coauthor at Northwestern University. He’ spent a lot of his career tracking people through these historical records. And I said you know, we got to follow up on these people because this was potentially a life changing event for them.

 

DUBNER: And not necessarily life changing for you guys, but it’s kind of a diamond in the rough, or maybe not even in the rough. But to find a pile of data like this, which as you put it is a shock to the system. In other words, it’s the kind of experiment that an economist today would love to run, but you can never get permission to, and here it’s been run, right?

 

BLEAKLEY: Yeah, so the reason why I got so excited about this is, of course, one of the big questions within economics is about the inequality of outcomes, the distribution of wealth, the distribution of income. And further that this seems to be something that to a large degree or to some degree is transmitted across generations. And you know, there’s a lot of questions as to why there’s this kind of persistence, why the distribution seems to have such a spread to it.

 

DUBNER: So I guess if I were to guess what you’re thinking then, I would guess that you’re going to say well okay, so here’s the perfect tool to tease out the question of: do people whose children and grandchildren do better than them do so because of money and because they use money in a certain way, or are there other explanations for it? Is that what you were concerned and excited about?

 

BLEAKLEY: That’s exactly right.

 

[MUSIC: Dan Sistos, “Caravan Jam” (from The Road to Euphoria)]

 

DUBNER: Coming up on Freakonomics Radio: what did Hoyt Bleakley learn? What did the families who won the land lottery do with their windfall? Did their wealth grow and grow over the generations?

 

BLEAKLEY: I was surprised. I think that I would not have expected this at all

 

DUBNER: And what do we know about contemporary lottery winners?

 

BLEAKLEY: If you want to be depressed you should read either the academic literature or the journalistic accounts of lottery winners because they basically waste it, right, blow through the money very quickly and often times end up worse than how they started, many of them.

 

[UNDERWRITING]

 

[MUSIC: 3 Leg Torso, “B&G’s” (from Astor In Paris)]

 

ANNOUNCER: From WNYC: This is FREAKONOMICS RADIO. Here’s your host, Stephen Dubner.

 

DUBNER: So a pair of economists, Hoyt Bleakley and Joseph Ferrie, found a fascinating data set from a fascinating moment in history -- a big land lottery in Georgia in 1832. They realized they could use this data, along with U.S. Census data, to follow families over time, comparing lottery winners to losers, to see how this shock of sudden wealth affected those families. Did the kids in these families acquire more “human capital,” as economists call it? Did they get more education, and did they parley that education into even more wealth a generation or two down the road?

 

BLEAKLEY: So, we see a really huge change in the wealth of the individuals, but we don’t see any difference in human capital. We don’t see that the children are going to school more. If you father won the lottery or lost the lottery the school attendance rates are pretty much the same, the literacy rates are pretty much the same. As we follow those sons into adulthood, their wealth looks the same, you know, in a statistical sense. Whether their father won the lottery or lost the lottery their occupation looks the same. The grandchildren aren’t going to school more, the grandchildren aren't more literate.

 

DUBNER: Wow. Alright, so two questions for you. One: were you surprised? I would have certainly assumed that the families who won the lottery and had a lot of money would have used it to do what we think most parents should do with their kids, which is get them more education, get them more prepared for a good career and so on. Were you surprised?

 

BLEAKLEY: I was surprised. I would not have expected this at all. This was a period where people were sending their children to school to a small degree. This is a period where it looked like poverty, at least in the cross section seemed to be an impediment to doing that,  you know, school attendance rates of the very rich versus the very poor differed by 60 percent. And yet when you used this, you know, random wealth drop to move the very poor into the middle, it did not move them along that path, which you observed.

 

DUBNER: So my next question then would be where does this money go? You’re saying that the next generation doesn’t maintain the wealth, what happens to this wealth then? Does it just dissipate?

 

BLEAKLEY: Where did it go? Well, you know, this is a period where you didn’t necessarily have access to good retirement assets apart from the stuff you owned right around you. You could imagine that the families that won used this for themselves, right, sent their children off to do something else.

 

DUBNER: To do something else meaning what they would have done what the parents not won the money?

 

BLEAKLEY: Yeah, basically.

 

DUBNER: Now, could it be that what you found is true for this particular setting, the agrarian Southern U.S. in the 19th century, and for whatever reason human capital just wasn’t so valued and wasn’t sought after.

 

BLEAKLEY: The question is how generic or how much does it generalize to other contexts. And I think you've hit on the key thing, which is how much was human capital valued and how much was human capital constrained. On the former question, I guess I would say it looks like human capital was valued in the sense that people did send their children to school, people who were literate did make more money, people who had more money did make those investments in their children with a greater, you know, propensity. It just maybe wasn’t that the constraint was particularly important, at least to the men who won or lost the lottery, that’s a key point, which is that there may have been a lot of money on the table, but they just didn’t care because they didn’t care enough about their kids.

 

DUBNER: But you know, it gets to a few questions, a few issues that we’re talking about a lot these days in society, generally, income inequality and income mobility, the whole idea of the American Dream as one could do much better a generation down the road, that our economy affords that opportunity. What you’ve identified in one setting is where a shock of wealth didn’t snowball and turn into a “better” life for the generation and the next generation. So I’m curious if you can extrapolate or generalize at all to you know, the broader U.S. or maybe to the present day from what you’ve learned. I mean, if we look at a map of the U.S. today that shows where income mobility is high and low, the deep South including Georgia is pretty much the headquarters of low income mobility. So is it that you’ve found an example of that or is it that you found something larger than that, which is that wealth alone is not what turns into greater generational wealth?

 

BLEAKLEY: I would make two observations, one is that we actually observe pretty strong persistence of outcomes across generations in our sample of lottery losers, right, so think of that as the control what it would have been absent that. And the numbers that we get from that are actually comparable to what we get for modern estimates of persistence of wealth, of persistence of education, literacy, etc. And so I don’t think that this is a particularly exceptional thing in the sense that there is mobility, but there’s also persistence. And we kind of fall within the range of that.  But it still comes back to the question of whether, you know, I think is as true today as it is then, is are the disadvantages that might be present for children that are in poor households are they present because there’s not enough resources, there’s not enough money at the poor household, or is it because there’s not enough of something else? Right? Maybe the resources have to come from outside the household, be it say a good public school. Maybe the resources have to come from the parents, but the parents don’t know how to provide it in terms of nurturing, in terms of reading and communicating ideas to their children, etc.

 

DUBNER: But if we wanted to blow your research up, your research concerns a small place in time, and a small geographical place. If we wanted to totally and irresponsibly explode it and try to create some grand generalizations, we would say, well look, plainly the viewpoint, which holds that giving people, giving poor people money, just giving them money doesn’t work, because they don’t use it to produce what we, the people who give them money want them to use it for, which is to make their lives and their children’s lives appreciably better through getting more education and so on, right? It’d be very easy for let’s say a politician who believes in that position to read your paper and say, hey, I’ve got a University Of Chicago and a Northwestern economist telling me this is hardcore proof of what I’ve been saying all along. Is it?

 

BLEAKLEY: Well, certainly for these...If the politician were contemplating, you know, giving wealth to these people in the 1830s, certainly that policy would be, that analysis would be right on. As you said, there are issues about generalizing it. But let’s do the wild extrapolation. I think you’re right to say this is not evidence that what’s missing is money at the household level, right, because we don’t know that it would be spent on these things that we want. That doesn’t mean that there’s nothing to be done, it’s just it doesn’t mean that money is the solution, right, or at least money that gets given to them, to those fathers, mothers.

 

[MUSIC: Louis Thorne, “Mon Verrerie”]

 

DUBNER: It’s funny, Hoyt, because we actually had a listener write to us recently and say, you know, I really like your show, but god it’s depressing. It’s like you take all this good news out there, and all these good ideas, and good plans, and nice intentions and show how, you know, people game the system, or they don’t work. Now, I disputed this a little bit. I actually think that we’re extremely optimistic and kind of hunting always for ideas that do work well. But I’ll be honest with you, you’ve depressed the crap out of me, Hoyt. Because you’ve taken a very basic idea and belief, which is that poverty is addressable by a very simple intervention, which is giving money to poor people, and you’re saying based on this evidence that’s just not a solid argument, at least when made that narrowly, right?

 

BLEAKLEY: No, that’s right. There may be something that you can give to them, but money is not that something, at least in this episode.

 

DUBNER: Alright, let me ask you this, not that this is going to be any less depressing, but it might be a little more entertaining. Have you looked at all on literature on modern lotteries and what happens to people who win them, and whether they do a better job of encouraging human capital acquisition among their offspring?

 

BLEAKLEY: Oh, no if you want to be depressed you should read either the academic literature or the journalistic accounts of lottery winners because they basically waste it, right, blow through the money very quickly and often times end up worse than how they started, many of them. Now it bears mentioning that what distinguishes that group from this one is that it’s a very select group of people who go play the lottery every day at the convenience store, right? We economists like to refer to the lottery as a tax on people who don’t understand math, because, you know, in statistical terms it’s a negative expected value, right? You pay more in than you expect to get back out. And that’s different from what we saw in the Georgia lotteries to allocate land because these people, they understood expected value, because they paid 12 cents to basically get 100 dollars of expected value. So that is a pretty clear decision. But I think it helps understand, to some extent, our results in the sense that when you select a particular group of the population and you either give them money or you cajole them to get more schooling by bribing them with a cash transfer or cellphone minutes or what have you, you have to ask whether there is some other set of characteristics that they have that makes it hard for them then to take advantage of those opportunities. And maybe there’s an intervention that helps them better manage those other characteristics, right, that makes it such that that’s less of a disadvantage for them. Whereas giving them something, you say well, this was great for me, it will be great for you, that’s perhaps not the right approach.

 

[MUSIC: Pearl Django, “Rhythm Oil” (from Mystery Pacific)]

 

DUBNER: So … did we depress you too? I hope not but I suspect that we may have. Okay, how about this then: why don’t you send us some non-depressing ideas for future episodes. Our e-mail is radio@freakonomics.com. And maybe we can turn your ideas into “Freakonomics Radio: Good News Edition.” It might be the shortest podcast we’ve ever made. Or maybe – who knows – maybe you will overwhelm us with uplifting ideas for future episodes. In which case we’ll be the ones who won the lottery. And we promise not to blow it.

 

[CREDITS]

 

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COMMENTS: 106


  1. JPB says:

    The illustrious ecophilosopher Chris Rock does a great bit on this.

    It comes down to the difference between being rich and having wealth.

    Wealth takes time to build. Rich can be fleeting.

    Well-loved. Like or Dislike: Thumb up 27 Thumb down 2
    • steve cebalt says:

      So true, JPB. “Rich can be fleeting.” I am reminded of the great economist W.C. Fields, whose view on allocating a monetary windfall was this:

      “I spent half my money on gambling, alcohol and wild women. The other half I wasted.”

      Good topic, good podcast.

      Well-loved. Like or Dislike: Thumb up 8 Thumb down 1
      • JDL says:

        I think it was George Best, English Footballer

        “I spent a lot of money on booze, birds and fast cars. The rest I just squandered”

        Thumb up 0 Thumb down 0
      • Paul Craig says:

        George best was northern irish. You should say ‘norther ireland’ or ‘British’ footballer, George Best. England is another country and George Best didn’t play for them.

        Thumb up 0 Thumb down 0
    • g says:

      This really points to the problem with this study. The study equates the land with money when in fact it would take some money to even operate the land. Assuming the winner was even knowledgeable about farming, the winner would need cultivation equipment, horses and livestock, tools, and either family members or otherwise free labor to even get started. There was probably a very high failure rate.

      Then in the unlikely event that they made a go of it at all, guess where the kids ended up? As cheap labor because back in those days the most expensive thing was in fact labor. You couldn’t afford to send them to school because of the opportunity cost of the labor would be too great to justify.

      This Georgia case simply isn’t a great study to explore how impoverished people might be able to augment their own asset base given the true freedom of choice. But why does the experiment have to involve $50k per family. I just saw a news segment on how Nicaraguan families live on $4/day. You could study how 35 families employ extra money for a year for about $50k if you wanted to do a meaningful study.

      Well-loved. Like or Dislike: Thumb up 10 Thumb down 1
  2. Sam_L says:

    I was surprised to not see mentioned any consideration of the impact of the war 30 years later on multi-generational outcomes. Those who won the lottery may not have been able to follow an upward trajectory because of disruptions in the economic system that they knew.

    Well-loved. Like or Dislike: Thumb up 16 Thumb down 2
    • James says:

      Even beyond this, consider the impact of later westward migration.

      I’m also more than a little curious as to whether there is in fact sufficient data to accurately track what happened to the following generations. Say Joe Lotterywinner has four kids starting in 1832. In 1849 there’s the California Gold Rush, so the most ambitious kid heads west, and we lose track of him. Maybe he parlays the few nuggets he found into a grocery store, or railroad shares, moves to a mansion on Nob Hill, and forgets about the poor relatives back home. A few years later, another one goes off to homestead in Montana or Oregon, and we lose track of him too… Do his descendents still (like some of the families hereabout) hold thousands of acres of land? How on earth could anyone possibly track this sort of thing accurately enough to create usable data?

      Thumb up 2 Thumb down 3
      • Enter your name... says:

        It seems like you’d have at least as much trouble tracking the non-winners, so this probably comes out in the wash.

        Thumb up 0 Thumb down 0
    • stuckinsd says:

      The paper does talk about the impact of the Civil War.

      Thumb up 1 Thumb down 1
  3. Christine says:

    Long term gains have to be more important to people who acquire money who aren’t used to having it.

    Thumb up 1 Thumb down 4
  4. Red says:

    My house has been through 4 natural disasters in the past 3.5 years:
    A massive flood in 2010
    Hurricane Irene in 2011
    Hurricane Sandy in 2012
    Supermegablizzard Nemo in 2013 (including a fire in the house due to a faulty candy.)

    We weren’t poor before, but we certainly are now. $50,000 wouldn’t change are lives, but it would definitely do a lot to bring us back up to where we were before.

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  5. Daryle says:

    $50,000? Sure. That ought to be enough to get one person an associates degree. And once you have that, the money just starts flowing in.

    Thumb up 6 Thumb down 3
  6. JimFive says:

    I think it is interesting to consider the same scenario today. You are randomly given $100,000 (~10 acres) of land. What do you do with it? Does it change your life and that of your descendants forever? Probably not, because, truly, that isn’t enough to change your life. If you are not already in the top half of the wealth distribution you’re not going to quit your job and move to your new parcel. Because there’s now a lot of land sellers and few buyers, your land isn’t even really worth the face value so you get maybe 80%. You might sell the land and pay down some debt, buy some stuff, and invest whatever is left, but it isn’t really that much unless you get lucky again.

    Additionally, since the outcomes being measured are based on children’s education and success, are there even schools available? If you move to the newly distributed parcels then there aren’t any schools there. How many schools were available in rural Georgia (and what was the wealth distribution between rural and urban Georgia)? Keep in mind that travel to school is on foot, and boarding school is expensive.

    Even if someone wanted to keep their land, do they have the resources to exploit it?

    JimFive

    Thumb up 5 Thumb down 4
    • Enter your name... says:

      They weren’t given “$100,000″ or “10 acres”; they were given enough farm land to support a family on. It’s the agrarian equivalent of giving someone a good job.

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  7. C R Steven says:

    What about the aggregate demand increase to raise all boats and increase opportunities? It would seem that influx of money in a community would increase wealth across the board. Reminds me of the small Texas town that half the people won the lottery. Not sure how that turned out in the long run.

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  8. Brad says:

    Perhaps I’m misunderstanding some of the facts discussed in this podcast, but I heard a number of notable flaws in the reasoning used in this study/discussion.

    To begin with, having a physical commodity (land) worth a certain value of capital ($) is not equal to actually having that value of capital. Being gifted a large tract of land may represent a significant economic boon to an individual, but it doesn’t quite directly equate with a gift of direct liquid capital (the “bucket of cash”).

    The researcher places great value on continued education and upward generational mobility. He points out that there was a clear link between a college education and multigenerational success at the time. He doesn’t explain whether this link to education and success was commonly understood and valued enough to be considered important by the winning families. Given the relatively small percentages of the US population to receive university educations into even much of the 20th Century, I question whether this “common knowledge” of contemporary society and a data expert would necessarily have been even known to the winners. Compulsory education for primary and secondary school did not even become law in Georgia until 1916.

    My assumption while listening to this was that the gifted properties were primarily intended for farming use. In that case, a lot of land could mean a reliable and steady profession for an individual and their descendants… eliminating the need for an advanced education to ensure a stable life for future generations. Even if these families did understand and value educational opportunities for their children, the complete lack of liquid capital as part of this significant financial gift means that using the gift to better educate their children would require having to liquidate at least some of the gifted commodity. In other words, selling off land to finance this education. Which could mean at least a short term loss of regular income.

    And finally, as another commenter already mentioned, the economic impact of the Civil War on the rural communities of the South should also be considered. It’s entirely likely that the winning families and the control group had similar levels of financial success over time because all of their cumulative wealth was reduced to near zero following the war. So any gains made by the winning families in the 1-3 generations following the land gift might have been negated by the devastation of the Southern economy.

    Overall an incredibly interesting study and discussion. But given these potential fallacies, I question whether the findings support the generalized conclusions suggested as concern the role of large cash gifts on improving lives.

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    • Ryan says:

      Yeah, I’m wondering if these people had to pay taxes on this land. Maybe that was mentioned when I was distracted.

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    • kristina says:

      Great points. I also questioned the validity of this study, given that land and cash are not perfect substitutes. The lottery winners have to be able to realize the value of the land somehow in order for it to benefit their families, otherwise it’s just dirt with grass and trees on it. Do they have the skills to farm it? Can they sell it? My guess is they could not sell it, given the sudden increase in available land due to the lottery, or risk selling it at a loss. There are also gender issues at play here, as only men were able to win, and are known to make different family wealth decisions then women.

      I hope that Freakanomics does a follow up podcast with further discussion this. There is more recent research on programs that gave one-time cash infusions to families in developing countries, which I believe had very different outcomes than the study discussed in this podcast.

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      • Willa says:

        I agree that a follow-up podcast is warranted. I had the same questions raised by previous commenters (what about the clear difference between cash and land? what kind of land was it? did recipients have the skills to make it something other than a place to squat? were effective markets in place to make it possible to do more than subsist on farm yields?)

        And I was amazed that a small land award was repeatedly compared with a lottery win — a phenomena of immense wealth and social attention that has taken a detrimental toll on some recipients. These are clearly very different situations.

        I was also put off by the researcher’s initial statement about there being only some correlation between wealth and educational attainment from one generation to the next. This grudging statement about an established phenomenon needed some exploration.

        Frankly, this episode (and the recent one about parenting) have shaken my faith in Freakonomics. Both episodes overlook a lot of grey areas in an effort to make research seem Freak-ishly out of sync with popular understanding.

        The way to high traffic is to take the counter-intuitive position, but Freakonomics listeners deserve a more nuanced discussion.

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      • Tracy says:

        Land is potential cash. Customs of land use in the South, from Reconstruction up to at least the Great Depression, involved leasing sections of land to sharecroppers. Did the lottery winners do this, before the Civil War? It would have caused the lottery winners to seem more like cash winners, instead of , “Here’s land, if you can use it.”

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  9. Steve Gibson says:

    A wise man once related to me : If all the wealth in the country was seized and distributed evenly amongst all the inhabitants it would take about 20 years before it wound up in the same hands as it did before the redistribution. Equal Opportunity does not result in equal outcome. You can’t redistribute a work ethic.

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    • Working class says:

      I’m sorry, but you sit in an office all day right? And make more than blue collar workers that bust their ass all day. Don’t ever mention work ethic again.

      What about the rich children who had all of their wealth handed to them? And their rich parents who had the same thing happen?

      Some people start at the top of the ladder, some start at the bottom. Take the wealth from those who barely had to lift a finger, and then tell them to earn it back. Do not smugly act like at the upper class has worked hard for all they have. Someone else has worked hard for them.

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      • James says:

        Sorry, but at least some of us here on the borders of the uppper class – say the top quintile – did work hard, in the blue collar sense, to get where we are today. If today I can work from home (not an office) using a keyboard, it’s because I got pretty darn tired of picking fruit, driving a tractor around a field in a Bakersfield summer (before tractors had air-conditioned cabs), putting in 100+ hours a week toting bags of cement, and suchlike, and took steps to change that. Further, because I had no desire to go back to that sort of work, I made sure I didn’t spend every cent of my now-higher paycheck. I saved & invested, and now, a few decades from those fields, I don’t have to work at all to survive.

        So if I, who am not all that extraordinary a person (much as I’d like to think otherwise :-) can do this, why can’t most of the rest of the 80%?

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      • bcarson says:

        To assume that “office work” is less difficult than “blue collar” work is a flawed assumption that the physical labor of a specific job defines the difficulty of that job, and ignores the work it takes to get an “office” job. I have done both, and in my experience the mental stress of white collar work is far more demanding than the physical stress of blue collar work.

        It is so common to hear someone decry someone else’s job as easy, and overpaid. Quite simply, if another job is easier and pays more than yours, why aren’t you doing it? It is probably because that office job is not quite as easy as you think, and it is far easier to gain the necessary qualifications for a blue collar job than it is to gain the time consuming qualifications of a white collar job.

        Certainly, not all rich people start out rich, or have things handed to them – although it makes one feel better to think so. The assumption that all upper class people “don’t have to lift a finger” is cynicism designed as a defense mechanism to make oneself feel better that one has not accomplished what one wishes they had.

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      • Willa says:

        I know that this isn’t universally true, but I live in a working class city and the only wealthy people I know were born that way and spend their time making art that no one buys, writing memoirs that they can’t get published, etc. I know A LOT of hardworking people, but I don’t know a single wealthy one.

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      • James says:

        Willa, you might consider moving :-)

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    • Greg says:

      And how exactly did this wise man know this? Thats pure BS. It was his opinion but there is NO factual basis to such a claim.

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  10. Morgan says:

    An idea for a “Good News” podcast: the Early Retirement Extreme movement, wherein average americans are retiring after as little as 5 years of employment. These concepts are described on the blog by the same name, as well as the blog Mr. Money Money Mustache, and the classic book “Your Money or Your Life”

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    • James says:

      Except the bad news is that if everyone did the frugality thing, the economy would collapse. It depends on people buying unneeded consumer junk in order to create jobs for people making unneeded consumer junk, so that they can become part of the economy and use their pay to buy more unneeded consumer junk, thus creating more jobs…

      Now if your background is in physics (as mine is), this all starts to look rather like perpetual motion.

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      • g says:

        Ah yes, the old ‘your consumption is my income and my consumption is your income’ chestnut. Unless of course I don’t value what your providing me and then you’re just sucking the life out of me for no return. Which is better: to collapse or to explode?

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  11. JFD says:

    Could it be the satisfaction of pent up demand? For instance, if you give someone $50k who has been living below their needs isn’t it likely that a large portion of the $50k would go to ‘righting the ship’? If so, the true societal benefit would have already been materialized at the time of the distribution. In order for an experiment like this to show improvement it would seem to me that the money would have to be distributed to participants who were already able to meet their needs prior to the distribution.

    As far a question for future podcasts. I’d like to know what is the ‘magic value’ that would be necessary to set a doctor/hospital visit so that the people who had a legitimate need would go but wouldn’t deter those who could not afford it not to go. For instance, would the system hit its ‘right setting’ if everyone who accessed the system was charge $452 every time they accessed the system? (Every doctor visit, every hospital visit – etc.)

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  12. Alex says:

    Related to Brad’s comment about the difference between winning a thing and winning money, is there any evidence that lottery winners could actually extract any value from the land they won? I assume people could really only do one of two things if they won a plot: farm on the land to make money from it, or sell the land to someone who could. Some (most?) winners wouldn’t be able to start a farm from scratch, and who knows what kind of value they could get by turning around and selling the land.

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  13. David says:

    So, how does this story square with the recent Planet Money article on giving direct cash to families in Africa…..that seemed to have a positive impact

    http://www.npr.org/blogs/money/2013/08/16/212645252/episode-480-the-charity-that-just-gives-people-money

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  14. Caleb b says:

    Given that modern lottery players are overwelmingly poor and uneducated, it does not surprise me at all that a sudden windfall of cash does not actually help them all that much. 1) being poor means you probably have poor friends/family that want/need part of that win 2) you have, as one person already put it, pent up demand to right the ship 3) if you are like most Americans, you are financially illiterate, so you might make very bad choices of savings/investing/purchasing 4) people with more education will probably scheme a way to rip you off 5) you have “dream” wants that are probably expensive, like a flashy car that you pay the asking price for bc you want it right that minute

    One other note, given that taxes and the time value of money, you really usually only get about 25% of your prize money….so for many wins, that really cuts down on the whole transfer.

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  15. Lew says:

    You can do that study right now. According to a Cato Institute study recently quoted in Forbes, if you meet certain requirements in Hawaii or D.C., you can get government benefits exceeding $50,000 per year. Go find some of those people and see how it’s working out for them. I am fully aware that those type of benefits are not something you can get for a lifetime, but I would bet you can find some families that have benefitted for generations and are in the same boat now as two or three generations ago. One of the things we really need to teach people in this country is how to spend their money.

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  16. Sue says:

    Only those with money say it doesn’t matter

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  17. Brad C says:

    What about looking at a set of highly paid professional athletes that rose out of poverty? Seems that would be a good place to find relevant data.

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    • James says:

      I don’t think that’s really comparable, since in order to become a highly-paid professional athlete, a person must generally have the determination & self-discipline needed to spend years training to excell at the sport. Even then, there are many stories of athletes whose self-discipline didn’t extend to financial matters, and thus wound up broke when their playing days were over.

      Perhaps a better data set might be successful rap “artists” and suchlike.

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    • Caleb b says:

      Most of them are broke within 3 years of retirement. So I guess that answers that.

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    • bcarson says:

      As I mentioned in another post (prior to seeing this one), 78% of NFL players are broke in 5 years after retirement, and for the NBA, where the average salary is the highest of any sport, the number is 60%. The median salary in the NBA is 2.33 million$, the NFL median is $770,000.

      This is evidence that wealth is not simply the result of income. That intergenerational wealth is the result of passed down culture, not wealth, and that longterm financial stability is as much about financial planning as it is current income.

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  18. Katherine says:

    Here’s a few feel-goo suggestions:
    What is education really worth?
    (I know you’ve already hit on this.. but extrapulate. I’m a teacher and never get tired of that)
    Which charities do the most good?
    I’ll let you define the parameters of each. :p

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  19. Thought Experiment says:

    Hmm … This story raised a lot of questions for me.

    I could imagine a lot of contextual factors that could explain why being given land in the 19th century in a place newly opened up for development would not be linked to your children being more likely to be educated, or with those persons becoming more well off than their neighbors in that period.

    For example, I would imagine that the children who’s parents were given the grants would be more likely to be working on that land/farm rather than going to school – probably a smart move as turning the land into wealth would require a big investment of labor, and ostensibly farming or working the land somehow could be the children’s future.

    And how available was education for all these people in that area at that time? Spread out over all these acres of land?

    Beyond that, even today, being a successful farmer is complex – very capital intensive – requiring many additional upfront investments from the farmer (especially at that time) in terms of labor, seeds, stock, etc. that cannot be recouped if the project fails (i.e. weather, etc.). And if a whole lot of land was given away to development in the same region at the same time, perhaps it creates a glut in the market for the products coming from that land? And all the landowners would face the same events and pressures at the same time – meaning that the same events would effect them all in similar ways – driving prices for supplies and land values down in the same moments?

    To the degree that there would be benefits from development, wouldn’t the whole community of people benefit from the development of that land? Not just the land owners – meaning that the land giftees would not be so much better off than others in their community?

    For example, perhaps those who are less tied to such an un-liquid gift – their neighbors who instead were selling the tools and seeds to farmers, lumber people, etc. would be better off in the end – just as likely to be successful, or more. Just as likely to send their kids to school (or not) – that is, at the degree to which education was perceived – or even had anything to do with social mobility at that time.

    I wonder if there is data on people who sold the land soon versus those who held it? Though here again, the value of the land might have been deflated by the sudden increase in people with land to sell at that moment.

    It feels like the research might be taking a 21st century lens – where education is strongly linked to social mobility, where land itself is an easily trade able commodity, where investment resources that can be used to turn land into wealth are easily attainable, and where landowners aren’t trapped by extremely local market forces – and applying it to a very different period.

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  20. Cathy says:

    I am wondering how this jibes with the recent podcast suggesting that the solution to charity was to give cash directly?

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  21. Manuel Perez says:

    Excellent presentation, guys!
    How about looking at the results of the 1960 and on programs and projects that helped young teenagers start their own businesses? I don’t remember all the details, but they were even promoted on TV… Was there a difference in success rates from other entrepreneurs of their own age? Did these programs have any long term effects?

    Thank you!…………. Manuel Perez

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  22. Dan D'Errico says:

    In a similar vein, I have heard that the poor cannot manage money and this is one of the reasons they are poor in the first place. This may seem self-evident. But let’s you only have $200 this week. You need to decide whether to use that money for medicine, food, the electric bill, subway fare, etc. This is a very intense balancing act that borders on a survival skill. And think of the stress! I would like to see a rich guy count his pennies like this. Of course, if the poor person wins the lottery, all of the penny-pinching may go out the window. But even if the poor person spends all of his money, at least he is stimulating the economy for others!

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  23. Barbara says:

    I must have missed something here. I suppose some of these winners had capital and farming experience and no local responsibilities so they could pack up, move to the country and start breaking the land. But if it happened to me, I wouldn’t know how to begin. Could your average lottery winner buy a mule and a wagon and a plow and enough food to get through to the next harvest, and port it way out there? What about his little children and his elderly, dependent parents – would they get loaded in with the plow and provisions and the seed and come along?

    I don’t know- to me, this study leaves out some important stuff about the nature of a gift. I think the better study would be about modern prize winners given cash without unreasonable requirements for taking advantage of the money. (As I understand it that has no better outcome.)

    It would be good to see a study of the long-term effects of small third-world loans such as Kiva provides – maybe in another generation that can be done.

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    • Joe J says:

      In 1830s the US was very much still an agrarian nation, especially in Georgia. Farming experience would be as common as knowing how to drive today. As to the mule and plow, usually each family farm wouldn’t need to own one, at least till the farm grew past family farm size, since effectively you would only use it a short time each year. A group of farms might need one, renting or trading it among themselves.
      Also with this study it was a 3 generation study, long past when other startup costs would have vanished.

      Modern prize winner fare much worse, though as stated it is a self selected sample.

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      • James says:

        The problem is that all the farms tend to need the mule & plow at pretty much the same time. A mule can plow roughly 1-5 acres a day, depending on soil type &c. For farms on this previously-unfarmed land, I’d guess somewhere at the lower end of that range. So if you’ve got 40 acres of your land under cultivation, you need the mule for a month or so to do spring plowing. And your neighbors need their mules for the same month.

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      • Joe J says:

        As I said once you have grown out of family farm stage. But people forget how much food 1 acre gives. With modern fertilizers and crops, you can feed a person for a year off of 1 acre. in the 1800s it was closer to 2 acres to feed a person. 40 acres is way past family farm size. So in a week on the low end, you could plow enough for a family. In later years it would take a day or two. Next year expand the farm adding a few acres, also not all crops are planted at the same time.
        Breaking new ground is much harder, so 1 acre is about right. Working a plow especially on unbroken land was a skilled trade, one which you would rent the plow, team, and plowman, usually for some % of your harvest.

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      • James says:

        Joe J: But a family farm needs to do more than just grow enough food to feed a family. It needs to produce a surplus that can be traded for all the things that can’t be grown on the farm.

        Also most crops do get planted within a period of a couple of months in the springtime, at least in the more northerly climes that I’m familiar with, so all farms within an area tend to be doing the same thing – plowing, planting, harvesting, etc – at pretty much the same time.

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      • Joe J says:

        Eventually, but this is a discussion of year 1, and that you don’t try to break all 40 acres first year. You might reach it in 5 or 6 years, but I doubt it, because you would need help harvesting that much anyway.
        A modern example is if you are thinking of going into the restaurant business, you don’t open 18 locations on day one, you open one and if it is successful you expand in later years.

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  24. tb917 says:

    Poverty cannot be entirely explained by economics; there are other sociological factors at work, which is why most charities don’t just focus on giving away money to end poverty. Instead they raise money to offer social services, such as the educational opportunities for children, job training for parents, and efforts to educate entire communities about sound financial planning. To the extent that they do give families money, it’s only to ensure that their children are going to school with a full stomach, that their parents have appropriate clothing for a job interview, or that the heat stays on while the family is working to get back on its feet. Giving away money does actually work if it is translated into services for the poor rather than a simple gift of cash. This is why social services organizations exist and why donating to them is not a waste of money—just in case people are thinking is all is lost after listening to this interview. It really doesn’t tell the whole story about the work being done to lift people out of poverty in America and around the world.

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  25. Bryan says:

    A recent podcast from This American Life (#503: I was just trying to help) dealt with this exact subject.
    From the episode details,
    “Act One – Money for Nothing and Your Cows for Free
    Planet Money reporters David Kestenbaum and Jacob Goldstein went to Kenya to see the work of a charity called GiveDirectly in action. Instead of funding schools or wells or livestock, GiveDirectly has decided to just give money directly to the poor people who need it, and let them decide how to spend it. David and Jacob explain whether this method of charity works, and why some people think it’s a terrible idea.”

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    • Julien Couvreur says:

      I’m curious about this charity too, but I doubt that they have data on long-term and inter-generational effects yet.

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  26. mannyv says:

    Don’t give it to someone who lives in a city. That’s ridiculous. Give it to someone stuck in a small town somewhere, itching to get out.

    But the really interesting finding is here:

    “The results are also inconsistent with a wealth-based “poverty trap” for human capital. The observed intergenerational links are consistent instead with the presence of underlying characteristics that are passed down along family lines and are associated with better outcomes.”

    You pass down culture, not money.

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    • James says:

      You don’t think there are people stuck in cities, itching to get out? And who do so, when & if they acquire a big pile of cash? I should know, since I’m one of them :-)

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  27. John K. Lunde says:

    If anything I would expect these land lottery winners to fare incrementally better (although maybe only slightly) than modern day lottery winners – if only because the modern day lottery is self selected based on uneconomic behavior of gambling on a lottery ticket with expected return < price paid.

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  28. Bill Watts says:

    You asked for some positive economic ideas – if you want a long podcast, try doing one on quality of life in comparison to medicine. Just look at life expectancy over the last 100 years with the medicines that have been approved then get into how some countries (EU) require quality of life be tied to price.

    You could probably have other science related topics that have “improved our lives” and look at the cost/benefits of those.

    Thanks.

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  29. Tommy Schouw says:

    The presence of immediate wealth without the means to invest it gainfully will most likely result in a rapid increase in personal consumption until you’ve spent all your gains. I have a friend with poor financial skills who managed to gain a ~$50.000 inheritance and waste it all in a matter of months, simply because they didn’t see any way to re-invest it gainfully.

    Personally, if I inherited $50.000 I’d simply throw them at my mortgage, to shave a few years off the repayment plan. In my case it would make sense for the first $50-60k representing the most expensive bits of housing debt, but after that I’d probably be better off putting them in some sort of retirement fund.

    Still, neither of these would do much to increase my socio-economic status.

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  30. Tom Rist says:

    You should do a story on the Evans Scholarship…a privately funded four year, full tuition and housing scholarship awarded to ~225 hardworking caddies (many of who did not have the means to attend college otherwise or would be in massive debt). With today’s college costs, it equates to around $60k at a state university. As an alum myself , I think you would see dramatic increases in the quality of life and trajectory of the future for the majority of families.

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  31. Tom Cronin says:

    There seemed to be a concern in the study that those who received the land did not turn it into “human capital”, namely education. There was another massive random occurrence in our nation’s history, the WWII draft. Many who served and returned home took advantage of both cash and educational benefits provided by the GI Bill. Others did not. Has there been a study of whether those who took the human capital educational benefits passed on more wealth or opportunity to their children, now 3 or even 4 generations later, than those who did not avail themselves of it? And how much does this account for the post-war economic boom (if it can be teased out from the effects of the direct capital investment in manufacturing and technology that also took place)?

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  32. Jennifer Thomas says:

    Re stories that won’t be depressing. Could you do a story about the differences that casino gambling in Indian Country (organized by Tribes) makes on the basic statistics of well being for the Tribes that operate the casinos: health (say, diabetes), education, substance abuse, domestic violence, diet, etc? There should be a fair amount of information available on this subject.

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  33. Justin says:

    Maybe not, but I would sure like to test it out and see how it all works out.

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  34. Sarah says:

    So, a lucky windfall doesn’t help but what about guaranteed income?

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    • Joe J says:

      They tend to fair slightly better than those with a windfall, but not much. Part of the reason lotteries started doing the over 20 or 30 yrs prizes. Unfortunately people tended to quit all jobs, overspend, overborrow against future incomes and in a few years were heavily in debt. Not in every case, but as they said in the segment, reading about lottery winners is depressing.

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  35. Jen Johnson says:

    While listening to this podcast all that kept running through my head was the saying we often hear applied to work: “give a man a fish and you feed him for a day, teach a man to fish and you feed him for a lifetime.” It seems to me that this is the major discontect in the idea of giving people, who have no money, money. Wealthy people do not stay wealthy because of their genetics. It is because of what the know. Whether it be how to save effectively, or how to use the connections they have in a way that furthers their interest. The “American Dream” still exists. We are still in a place that allows us to reap the benefits of hard work (and good networking). However, having the character and the knowledge to do so is becoming harder to come by. I’ve been reading a lot about the new findings in education. And what seems to come up in all the different places I’ve been reading is the needed presence of character for success in a child’s growth. Most often I’ve seen Resilence and Grit to be important qualities and I can’t help but think this applies to this as well. I just wanted to share that.

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  36. Julien Couvreur says:

    Fascinating study. I have to say I find the result surprising, despite what I knew about modern lottery winners (which does suffer from a selection bias).

    Have you heard of a charity called Give Directly? I don’t know too much about it, but it takes the approach of unconditional cash donations. It uses cellphone for the distribution and spreads the donation over time. They claim to have some results. But as you point out early in this episode it takes a long time to confirm inter-generational effects.

    When I think about what could possibly explain the results of the Cherokee lottery, two things come to mind: genes and memes.
    As discussed in your podcast on parenting, twin studies do show that genes play a significant if not a major role in success of children.
    Regarding memes, it is not just physical resources that matter, but your knowledge, your ideas, your understanding of the world, your values and your time preference. Those ideas affect how you plan and the choices you make. It is not easy to grow wealth that you win in a lottery or inheritance if you don’t know how to be an investor, entrepreneur or inventor.

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  37. R. Anthony Steele says:

    I think the larger question remains unanswered. I’ve heard the apocryphal stories of lottery winners blowing through their winnings for years; even read scholarly articles on the subject. But those observations have little or nothing to do with the question of what will help people out of poverty if handing them cash isn’t the answer; and the larger question of what we owe as a society to the children of the poor if we don’t want to condemn them to the same fate as their parents simply because they were born poor.

    …and I only bring this up because it’s topical. The House has passed bills curtailing aid to the poor (again) and constantly votes on denying access to healthcare for the poor. However, there is a long-held belief that membership in a society should equate to some minimal level of subsistence being guaranteed to productive members of that society. Granted that cash handouts are counter productive, are food stamp programs ill-founded? Providing minimal healthcare if only to keep the poor from clogging emergency rooms? What programs do work?

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    • James says:

      “…what will help people out of poverty if handing them cash isn’t the answer”? Well, in my case access to student loans sure helped a lot. But even that is not guaranteed to work for everyone, as witness the current stories about people who borrow excessive amounts to get unmarketable degrees.

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  38. bcarson says:

    Another easily cited and interesting natural experiment, although not nearly as good as this example because of lack of randomization, comes with the statistics seen with NFL and NBA players. Here, on draft day, and for years thereafter, a group of people that are disproportionately from non-wealthy backgrounds are, in rather a short time, given huge sums of money – much higher than seen with this land lottery in Georgia. And, despite this life changing wealth, 78%of NFL players are broke within 5 years of retirement, and 60% of NBA players. Additionally, MLB players, who tend to make their money later in their careers, and therefore perhaps owing to a little more maturity, also go bankrupt 4x more commonly than the average American.

    It comes down to the fact that lack of income is only a part of the story when it comes to asset inequality. The other factor, which I personally believe is more important, is the inability to manage what one has. As we see with lottery winners (and, frankly, lottery players), handing out money does not solve the fact that many people struggling economically are doing so as much because they do not know how to handle money as they are not making money (and, of course, it would be naive to think these two things are mutually exclusive). It is no coincidence that lotteries, casinos, and cigarette makers make so much of their money off the very people who can least afford to use their services.

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    • James says:

      Perhaps another factor at work here is the speed with which the money comes in. For example, starting from real close to zero I’ve accumulated a moderately large pile of money (especially if you include home equity), but it was a process of slow growth over about three decades. But unlike pro athletes, lottery winners, and the like, there was never a day when I could say “Hey, I’m a lot richer than I was yesterday, why not go spend a bunch?” A similar principle might apply to those who are born to wealth: because it’s something that’s always been there, there’s no temptation to go blow it all in celebration of your new wealth.

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  39. Travis says:

    I guess I’m not surprised that a cash transfer is not a very good way to improve someone’s lot in life. There are so many skills and not-obvious parts of money management. The episode was a bit of a bummer, I guess. But think of it this way: simple cash transfers are unlikely to ever be a big part of policy in the US.

    I haven’t heard any recent updates, but This American Life did an episode about the Harlem Children’s Zone, and Paul Tough wrote a book about it. They profile a very exciting, seemingly very well-thought-out
    strategy for reducing poverty in urban areas.

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  40. Claire Montanaro says:

    I have noticed how expectation and dependency are increasing in the US and other countries, whereby an increasing number of citizens believe they will be poor and expect the State to help them with food etc. Big government encourages the abnegation of personal responsibility, however unintended it is on both sides. If you expect to be poor you will be poor, and any money that comes your way will disappear fast – until your beliefs about abundance changes.

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  41. Jim Douglas says:

    I generally enjoy your show and analyses. But I found this one extremely disturbing – you and your guest made two huge mistakes in your methodology and analysis, along with another statement that was just flat wrong.

    The huge mistakes: Repeatedly both you and your guest referred the Georgia lottery as “giving money to poor people” and then went on to conclude that giving such money didn’t markedly change their lives, their behavior, nor that of their progeny. But….
    1. Money was NOT given to people, only land. Those are not the same. While land contributes to wealth and net worth, it is not liquid and can’t be spent. My house is worth a lot due to climbing real estate values, but I can go spend that. The Georgians that received land could not “spend” their land. Near the beginning of the show the question was asked, “could the recipients sell the land when they got it?” but the question was never answered. The implication of the rest of the story was that they held land, not cash. So people have limited ability to use non-liquid assets to change the way they live and behave. This is fundamental to the whole issue and completely overlooked in your story.
    2. The people were not necessarily poor. You stated stated that nearly 100% of the eligible population participated in lottery. Presumably, then, the winners were randomly distributed across the economic spectrum of the population. Some of the wealthy were winners, as were the poor, as were the middle. The value of the lottery winnings was stated to be about equal to the net worth of the middle of that distribution. So those on the wealthy end won something that didn’t markedly change their net worth; those in middle doubled theirs, and those on the low end greatly improved their condition. But with an even spread among the population, those that did extremely well were a very small part of the population. They were not poor.

    Bottom line – the Georgia land lottery was not about giving money to poor people. And everything you conclude after that statement is based on a false assumption and foundation.

    Where you were just plain wrong: when discussing current state lotteries you stated that in Georgia people invested 12 cents to get an expected return value of $100. Not true. They had about a 20% chance of winning so they had an expected value of $20. Still a great deal more than current lotteries – but this illustrates either an complete misunderstanding of expected value or intellectual sloppiness. Either way, it diminishes the credibility of the overall story.

    You can do better.

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    • Jim Douglas says:

      Correction: the statement “My house is worth a lot due to climbing real estate values, but I can go spend that” should be “My house is worth a lot due to climbing real estate values, but I CAN’T go spend that.”

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      • James says:

        But in fact you COULD go spend quite a bit of the increased market value of your house (and many people did, pre-2008), by means of a home equity line of credit.

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  42. ANS says:

    I had a few questions. Is there going to be a follow up podcast?

    Was the land awarded in the lottery only given to men? If so, how would it have been different if given to both women and men, or only women?

    Also, what was the economy of Georgia like at the time? Were jobs for people with education plentiful as a motivation to get more education? Or would children have possibly been motivated to move to more populated business centers away from their families if they got an education and parents might not have wanted that since their children were helping with the land?

    Was there an effort to track down descendants and see many generations later how the families that received the land compared to those who didn’t?

    Where did the money go? Did most people develop the land or sell it? Did the monetary money go into properties?

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  43. Gary says:

    Another similar study might be conducted with those who received Pell Grants for college at the beginning of the program over forty year ago, especially since this program was supposed to make an economic difference. Did it actually short-circuit the perpetuation of poverty across generations?

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  44. Arnout says:

    I just listened to this podcast and it made me think of this article in the NY Times:

    http://www.nytimes.com/2013/08/18/magazine/is-it-nuts-to-give-to-the-poor-without-strings-attached.html?pagewanted=all&_r=0

    How come the data in your podcast show such a different story than this article? Is it the amount of money that you’re giving away that makes the difference?

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  45. Zoran Lazarevic says:

    It is baffling that large transfers of cash or property (eg. a cow) do wonders for people in Africa who earn $1 a day, and have no effect in the United States. See Planet Money episode http://n.pr/14JaCCr

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  46. James says:

    Does this podcast conflict with the conclusions in “Should we all just give cash directly to the poor”? : http://freakonomics.com/2013/06/04/should-we-all-just-give-cash-directly-to-the-poor/

    It seems like here, they say that a random windfall doesn’t have a long-term impact, but in this earlier podcast, it was implied that it would have a long-term impact.

    Steve and Steve, please reconcile these two!

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  47. lewis kirvan says:

    I don’t see any attempt to account for the ways that land ownership in the antebellum southern actually tied people to certain social institutions (i.e. slavery) that probably damaged those families for generations. Southern sharecropping and plantation living do not generate much wealth. Giving people land in Georgia in that era was the equivalent of placing people in high-rise urban housing in the 40′s and 50′s. By giving people land (which was not as easily convertible to cash, especially given the paucity of productive places to put cash) they prevented those people, or nudged them, away from rational decisions that they might have made (such as moving to cities, moving north). Unless this is controlled for I don’t see how the paper can have much validity outside of its own very narrow context. This podcast really detrimentally conflates cash and other assets.

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  48. Tyler says:

    A perfectly analogous experiment is currently ongoing and seeing great success and improvement in people’s wealth and productivity in Kenya.

    http://www.givedirectly.org/

    They were even on This American Life recently. (http://www.thisamericanlife.org/radio-archives/episode/503/i-was-just-trying-to-help)

    I’m a little disappointed that this wasn’t mentioned.

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  49. Dr O says:

    TLDR … there are a lot of comments. I hope is not a duplicate, while also hoping it is.

    Doesn’t this research directly contradict the research by GiveDirectly … which Freakonomics reported about in June? I kept waiting some comparison and it never happened.

    http://freakonomics.com/2013/06/04/should-we-all-just-give-cash-directly-to-the-poor/

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  50. Jeff says:

    Just got out of my car after listening to this podcast and had to comment. I was dumbfounded that either Stephen or the economist were surprised by these results. It seems so obvious to me. Values drives our behavior around how we use our wealth (independent of the amount of wealth we have). Getting a windfall does nothing to change your values. On the other hand, someone who works very hard for wealth AND is successful at achieving it, is likely to pass on both the value of gaining wealth as well as the tools that were learned to acquire it.

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  51. Woody Mason says:

    there is one dramatic episode in Ga history 35 years or so after the lottery that they don’t take into account that would skew the outcomes of the residents of the area, land giveaway or not, Sherman’s March to the Sea. It came through Chattanooga and then through that section of NW GA to the battles of Kennesaw Mt. and onto the devastation of Atlanta and onto Savannah. What wasn’t destroyed was taken by the Union forces. I like Freakanomics a lot as I have read both books, but this debate has some serious holes in the reasoning… I guess they should have watched Gone With The Wind once or twice to grapple with the complete devastation of a region.

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  52. Kressel says:

    What interests me to know is if people who inherit money blow it too.

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  53. Sam says:

    The author of this study says that something else in addition to land (cash) is needed to assist poor families and their offspring to improve their educational and financial standing in America. I hope a follow up study would examine what are the additional factors, in addition to money that will help poor families. We know that racism and sexism have had a detrimental effect on the economic progress of American families in the past 150 years so I think the focus on new studies should be on efforts begun in the last 10 years. These efforts should be followed into the future for another generation. For example, if the city of Detroit (or any other large urban area) were to offer a lottery of land in the urban area to poor families, with support from the trade unions to help them restore the buildings and habitat for humanity to teach them how to do some of the work. Educational support can be given to the parents ( parenting training) and children ( pre school programs). This kind of study could be followed for the next 2o years to see what happens to the family’s finances and educational attainment.

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  54. Roy says:

    Another interesting data point is the state of Kerala in india. Kerala had a democratically elected communist party heading the state when the Land reform bill was passed in 1970. This basically gave the poor people who where leasing the land for cultivation, ownership of the land , from the rich landlords who owned vast areas of land. Interestingly, I feel this had a significant impact on future generations of people who received the land in improving their lives, unlike the example in georgia. I believe this as a small part of the reason why Kerala is a bit of a paradox. It has low income levels that are comparable to much of india. But it has a very high HDI index, which is comparable to the most developed countries in Europe.

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  55. John F says:

    At first when I heard this podcast I was shocked that a $50k value did not have a significant impact to the winners of the Georgia land lottery. Then I looked at my own relative that was a beneficiary of the 1832 Cherokee Land lottery and I realize this makes a lot of sense.

    My relative purchased about 10 lots from lottery winners in the 1832 Cherokee lottery. He seems to have accumulated some cash from buying and selling land in NC earlier in the 1800′s. As a result he was able to accumulate a sizable amount of land in north Georgia in this time frame.

    Here is my theory as to what occurred in north Georgia at this time.

    First, understand that that the average family size back in early 1800′s was much larger than today. My relative who settled in Union county Georgia had 10 kids. Let’s say that you won 160 acres in the lottery. If you had a family of 10 children and half your children were male, then you would have to split your land in 6 parcels (one for yourself, and one for each of your male children) so in one generation you end up with lots the size of 27 acres. While this seems like a lot of land in today’s terms, back then it was too little to support and family of 10 children.

    So a onetime gift of 160 acres will not have a perceptible impact on the next generation. They will likely have to find a way to find some new land to buy so they can be self-sufficient. But how will they get the money to buy land? They spend their youth working on their family farm so they have limited education. There have very little cash I their daily lives. Most of what they need is produced on the farm or bartered for with neighbors or the local store. Unless their parent can give them a sizable parcel, the offspring will need to find a new place to settle. In my case, the land ran out after 3 generations and it caused a migration to Colorado where cheap land was available in the mid-1800’s,
    The botton line is that the land obtained via the lottery was used to survive for the current generation or sold to someone like my ancestor for a small percentage of the real value. Regardless, it had little impact on the offspring’s wealth.

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  56. Milton Gardner says:

    You disregard the effect of the Civil War (1861-1865) which was particularly devastating for Georgia. Large battles were fought in North Georgia then Atlanta was burned to the ground. After that Sherman’s Army marched from Atlanta to Savannah leaving a path of destruction fifty miles wide. Affluent Georgians had a lot of their wealth vanish as their slaves were freed. The South was economically depressed for decades after that. All this occurred after the death of the original lottery winners or late in their life. Many of their children and grandchildren would fought in and caught the brunt of the war. Thousands of Georgians were killed or badly hurt in the war. Your failure to consider such an obvious alternative explanation is a shocking oversight which makes me question your credibility.

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  57. Patrick says:

    This study was fascinating to say the least. The fact that giving land will change a person’s want for higher education does not make sense in my opinion. Our world is made up of unique individuals. Each person would react to a huge life changing amount of wealth and land differently. As the study shows the majority of men that won failed to educate their son and daughters or make a difference in their economic well being. Although as many other comments bring up, this study forgets that not all men knew how to work farm land effectively or had the money to do so. Farming takes time, money, and knowledge in order to be successful. Although I think that is a weak point in this research, I think it is a great example at how free handouts merely change the wealth of the person receiving it, not their character or ability to spend it wisely.

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  58. Graham says:

    I thought this was a very interesting story. It seems that in the United States, people are generally more worried about the things they can buy with charity money rather than how they can use this money to improved their lives and the lives of their posterity. I believe this is because our natural habit of acting in the short term rather than in the long term. We as humans expect quick results and therefore blow this free money without a second thought of responsibility. Although this fact was proven true in the Georgia Land Lottery and the Lottery of today, it can still be witnessed that in many places, like Africa for example, have highly benefited in improvement of life. MAybe this is is due to different in culture or understanding of life. It is hard to tell and make generalizations about such a complex idea of wealth.

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  59. Max says:

    This study does not accurately reflect what would happen if we were to give $50,000 dollars to someone today. The land given in Georgia was given to one if five people, meaning that the value was a lot less than it would’ve been before. There are a lot of land sellers, and few buyers. If this land did raise the poor up to middle class, it is not an accurate comparison. $50,000 dollars is the average income of a middle class family for one year. Unless the entire sum was invested into a single person’s college education, I sincerely doubt it would make a difference.

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  60. Annabel says:

    I think that the comparison of the lottery to the Georgia “lottery” is not exactly accurate. Yes they are both examples of sudden increase in wealth, but land is different than money. IF you give someone land, they can use it and keep it for generations. That is where they live or farm. If you give someone money, they could spend it on anything. Money is much easier wasted and not passed down.

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  61. Maame says:

    I found it very disappointing and hard to believe that the estimated outcomes of 1832 and the present day America are basically the same for those who win the lottery. I figured that with time and the constant evolution of the world (which churns out more problems) mankind would have grown wiser and wiser by the century to know exactly where to put their money in case you got a big pile of it almost for free . I guess that was not the case.

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  62. mjayne says:

    The government did not give the people of Georgia money they gave them land. Therefore, it is not a valid argument if that event in history is there only evidence.

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  63. Jiayuan Wang says:

    Loved it! Due to actual social study, born poor is not the major reason for people to be poor. Instead, most of them do not have the concept of seeking wealth. Once they have the money, they would very likely to spend it on alcohol, cigarettes, etc. To be better, they might just keep the money, which would be spent eventually. Therefore, giving money directly would not be the solution! Change it from the root, education is the most essential!

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  64. Tivon Naeem says:

    This podcast ties into many different subject that we study at school. Some teachers use it for science, others use it for math. It also talks a bit about history, and can be used in history class.
    I really loved this podcast. And I learned that giving money to anyone does not always change their lives and brighten their future. IT all depends on how the money is spend. I could have answered this question, but it would have been hard to explain why i think the way I do. But this podcast helps me make a better conclusion to the question.

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  65. gwilliams says:

    It is a very good radio episode, although I don’t know if it would have the same result today if something similar was to happen, although like with the lottery: I imagine it will help those people for a little while but then they will spend all of it, or use it up. They need to know how to make good investments, and move their money make money, without this it will just slowly be depleted.

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  66. Jose says:

    I agree and understand all your viewpoints and ideas you all talk about. But I believe some poor families who win the lottery do know how to control money and not waste it just for material things. Some might buy material stuff like a new car, but it is because they never had one. But we cannot forget that they have been in poverty before so they know how it is like, saying that, I believe they wouldn’t like to be back to the way of life they used to have. Something they can change by investing their money and putting their kids on schools.

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  67. AndyB says:

    See
    http://www.bbc.co.uk/news/business-24821383
    for a modern day attempt at answering this question.

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  68. Braden says:

    This episode shows the harsh reality of how hard it can be for some to achieve the “American Dream.” Generations of poor families get stuck in cycle that is very hard to break out of. People need to try and help them break out of this cycle not with money but with education. However education can be very hard when the parents are not engaged. There needs to be a way to help not only the future generations but also the parents so they can help their own children.

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  69. Mark A. says:

    This comment is exactly what I was thinking while listening to this flawed analysis. “Hello, unimproved land in a remote wild place is not liquid “cash”, even if one’s paper net worth is doubled”. To the above commenter’s list of challenges involved in farming it (the soils in NW Georgia are not very conducive to agriculture anyway) I would add that, to sell it, assuming one can pay to survey it, the lottery winner is suddenly selling in a completely saturated market of other lottery winners. Given these realities, one would probably choose to put the deed under the mattress, stay put hundreds of miles away in southeastern Coastal Georgia, the only region that is settled, and wait for conditions to somehow change in northwest Georgia, probably with the arrival of railroads decades hence. Further into the future, one hopes academics will understand why one was not able to immediately improve one’s family’s social capital based on an utterly illiquid paper net worth gain.

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