Matt Yglesias directed me to an interesting NBER study by Here is the abstract:
One of the central predictions of the life cycle hypothesis is that individuals smooth consumption over their economic life cycle; thus, they save when income is high, in order to provide for when income is likely to be low, such as after retirement. We test this prediction in a group of people—players in the National Football League (NFL)—whose income profile does not just gradually rise then fall, as it does for most workers, but rather has a very large spike lasting only a few years. We collected data on all players drafted by NFL teams from 1996 to 2003. Given the difficulty of directly measuring consumption of NFL players, we test whether they have adequate savings by counting how many retired NFL players file for bankruptcy. Contrary to the life-cycle model predictions, we find that initial bankruptcy filings begin very soon after retirement and continue at a substantial rate through at least the first 12 years of retirement. Moreover, bankruptcy rates are not affected by a player’s total earnings or career length. Having played for a long time and been well-paid does not provide much protection against the risk of going bankrupt.
I suspect that poverty has multiple causes, including bad circumstances and bad decision-making. But if this study is correct, it suggests that poverty in the US is heavily influenced by bad decision-making. After all, if circumstances played an important role, then you’d expect at least some correlation between pre-existing wealth and likelihood of becoming bankrupt.
To be clear, I’m not suggesting that decision-making explains all forms of poverty. I suspect that people born on small farms in low-income countries are more likely to become poor as adults than people with equal decision-making skills that are born into wealthy families in the same countries. But I also suspect that as countries become richer, a greater share of poverty is due to poor decision-making and a smaller share is due to circumstances. At the level of wealth associated with professional football players, poverty is almost entirely due to poor decision-making.
If this is true, then a field experiment in Africa on a public policy such as Universal Basic Income may have little or no relevance for the situation in the United States.
PS. Whenever I post on these sorts of topics, people tend to misconstrue my claims. Thus I am not saying that the poverty of former football players is some sort of moral failure. Perhaps frequent concussions make people less likely to make wise decisions. If so, their poverty would be caused by poor decision-making, even as the poor decision-making had external causes. People who moralize sociological issues generally end up with very shallow views of the situation. At the deepest level of analysis, 100% of what happens in the world is due to circumstances. I separate causation and decision-making to make it easier to evaluate the public policy implications of a problem. That is, we need to think about what factors must public policy take as a “given”?
