Michael Gove is right: some poor families do budget badly - but it's not their fault

As the new book Scarcity shows, a severe lack of money systematically impairs our ability to focus, make decisions and control our impulses.

On Monday Michael Gove landed himself in hot water when, after visiting a food bank in his Surrey Heath constituency, he claimed that the financial pressures which force people to go to food banks "are often the result of decisions that they have taken which mean they are not best able to manage their finances."

The implication of this is that some families run out of money, and thus need to resort to food banks, as a result of their own, avoidable, error. Needless to say, this caused quite a controversy and Labour was quick to denounce his comments as "insulting and out of touch".

So, who is right? Are some families failing to make sensible budgeting decisions, or are they blameless? A new branch of psychology suggests that, paradoxically, both of these answers may be true. Scarcity, a new book co-authored by Eldar Shafir, a Princeton psychologist, and Sendhil Mullainathan, an economist from Harvard, investigates how the feeling of having too little affects the way we think. They report experiment after experiment demonstrating that a severe lack of time, friends, or money, systematically impairs our ability to focus, make decisions and control our impulses. All pretty important skills when you’re trying to develop, and stick to, a tight budget.

Their findings are remarkably general, and the effects are severe. In one study they found that prompting poor people to think about money before conducting a reasoning task reduced their cognitive abilities by about the same amount as missing a whole night’s sleep. This is a remarkable finding - I probably couldn’t tie my own shoelaces in the morning if I missed a whole night's sleep.

What’s worse, the feeling of scarcity causes us to focus on our most pressing needs, to the point that we disregard less immediate concerns. This 'tunnelling effect', for which Shafir and Mullainathan present a wealth of evidence, helps explain why the poor, be they in Manchester or Mumbai, regularly take out payday loans at exorbitant interest rates. Considerations about the additional costs of paying back the loan fall 'outside of the tunnel”, and en; up dragging people into further financial trouble, trapping them in scarcity.

And here's the real kicker; when otherwise rich and successful people have scarcity imposed on them in a controlled experiment, they show very similar reductions in cognitive capacity. The poor don’t make these decisions because they are short-sighted, or lazy. The very fact that they are poor causes them to behave in predictably irrational ways. In other words, if Michael Gove was as hard up as some of his less fortunate constituents, he would be just as likely to end up at the food bank as the result of his own, avoidable, budgeting errors.

To be fair to Gove, he made his incendiary remark as part of a more constructive point about the need to provide education in household budgeting and finance. But this misses the point. It’s not that poor people don’t know how to budget, in fact they have far more experience of managing a tight budget than the rich. The problem is the temporary reduction in cognitive capacity bought about by being hard-up. The authors argue that this makes traditional financial management courses particularly inappropriate. People who are consumed with worry about how they will pay the next bill are simply not in the right frame of mind to take a module on double-entry book keeping. Far better, perhaps, would be to design policies and financial tools in a way that takes into account the effect of scarcity on how we think.

Some hard-up families probably do make bad budgeting deisions; but it’s hardly their fault.

Sam Sims is a researcher at the Institute for Government

Michael Gove at last year's Conservative conference in Birmingham. Photograph: Getty Images.

Sam Sims is a researcher at the Institute for Government

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The problems with ending encryption to fight terrorism

Forcing tech firms to create a "backdoor" to access messages would be a gift to cyber-hackers.

The UK has endured its worst terrorist atrocity since 7 July 2005 and the threat level has been raised to "critical" for the first time in a decade. Though election campaigning has been suspended, the debate over potential new powers has already begun.

Today's Sun reports that the Conservatives will seek to force technology companies to hand over encrypted messages to the police and security services. The new Technical Capability Notices were proposed by Amber Rudd following the Westminster terrorist attack and a month-long consultation closed last week. A Tory minister told the Sun: "We will do this as soon as we can after the election, as long as we get back in. The level of threat clearly proves there is no more time to waste now. The social media companies have been laughing in our faces for too long."

Put that way, the plan sounds reasonable (orders would be approved by the home secretary and a senior judge). But there are irrefutable problems. Encryption means tech firms such as WhatsApp and Apple can't simply "hand over" suspect messages - they can't access them at all. The technology is designed precisely so that conversations are genuinely private (unless a suspect's device is obtained or hacked into). Were companies to create an encryption "backdoor", as the government proposes, they would also create new opportunities for criminals and cyberhackers (as in the case of the recent NHS attack).

Ian Levy, the technical director of the National Cyber Security, told the New Statesman's Will Dunn earlier this year: "Nobody in this organisation or our parent organisation will ever ask for a 'back door' in a large-scale encryption system, because it's dumb."

But there is a more profound problem: once created, a technology cannot be uninvented. Should large tech firms end encryption, terrorists will merely turn to other, lesser-known platforms. The only means of barring UK citizens from using the service would be a Chinese-style "great firewall", cutting Britain off from the rest of the internet. In 2015, before entering the cabinet, Brexit Secretary David Davis warned of ending encryption: "Such a move would have had devastating consequences for all financial transactions and online commerce, not to mention the security of all personal data. Its consequences for the City do not bear thinking about."

Labour's manifesto pledged to "provide our security agencies with the resources and the powers they need to protect our country and keep us all safe." But added: "We will also ensure that such powers do not weaken our individual rights or civil liberties". The Liberal Democrats have vowed to "oppose Conservative attempts to undermine encryption."

But with a large Conservative majority inevitable, according to polls, ministers will be confident of winning parliamentary support for the plan. Only a rebellion led by Davis-esque liberals is likely to stop them.

George Eaton is political editor of the New Statesman.

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