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9486 in the collection
What Keeps Poor People Poor
Most everyone has a theory about why the poor stay poor. Most everyone is wrong, says Charles Karelis, research professor of philosophy at George Washington University.
By Charles Karelis
Despite our self-image as a country of great social mobility, a surprising proportion of children born poor in America grow up to be poor. The immediate causes of their poverty as adults are not in much dispute. One big factor is not working full time, year round. Another is not saving for a rainy day, or for investment in occupational tools or training. The real question is why these patterns prevail among the poor.
On the surface, the behavior looks paradoxical. The economics textbooks concur that the less of a good one is consuming, the more satisfaction one gets from a little more. Hunger is the best sauce. But then the poorest people should get the most from a dollar of earnings or investment returns. And by similar logic, rich and poor alike get most satisfaction from a dollar when they have fewest of them. So poor people no less than rich should smooth over their financial low points by saving in relatively better times.
Virtually everybody involved in the American poverty debate has one of four responses to the paradoxical conduct of the poor.
The theory of dysfunctionalism notes that no integrated and healthy person would throw away satisfaction. So some kind of dysfunction must be at work in these patterns — depression, short-term outlook, impulsiveness, or something of the kind. From that diagnosis, it's a short step to paternalistic remedies. The middle class needs to help by acculturating, treating, sermonizing, regulating, or otherwise motivating the poor to stop harming their own interests.
Liberals insist that the departure from textbook rationality is apparent but not real. Underemployed and nonsaving poor people only seem to be throwing away satisfaction. In fact they're doing the best they can given their limited opportunities — the shortage of jobs, the shortage of banks in low-income areas, and so forth. The answer to poverty is more opportunity.
Laissez-faire conservatives agree with liberals that the inefficiency of the poor is a mirage. Underemployment and nonsaving seem to waste potential satisfaction only because we forget that poor people often have different preferences from the rest of us. Huck Finn gets more satisfaction on balance from floating down the river on a half-empty stomach than from working all day to put food on his table. But so what? Eccentricity is not irrationality. And likewise for most underemployment and nonsaving by the poor. It's not a question of overall satisfaction foregone. It's a question of different strokes. So let's leave the poor alone.
The fourth theory is defined by its opposition to Great Society antipoverty programs and their progeny. Like the liberal view and laissez-faire conservatism, this theory sees underemployment and nonsaving as perfectly rational, under the circumstances. Both are traceable to perverse public policies that support poor people even when they don't work and preserve them from rainy days even when they don't save. The answer is to get the government out of the way. Let labor-market incentives and disincentives guide able-bodied poor people into habits of work and saving.
There in a nutshell is the modern poverty debate, with its four familiar alternatives. But a fifth response to the puzzle seems to have been entirely overlooked. What if the economics books are wrong? In particular, what if the choices that truly benefit typical human beings when they're poor are working little and not saving?
Common experience suggests the appeal of this alternative. Consider the following scenarios:
In the first, a poor worker with no car or bus fare must walk six miles to work. And let's say this long walk results in six blisters, and six unwashed dishes in the sink at home, and workplace mistakes that bring six reprimands from the boss. Suppose too that getting a bus ride for part of the way would reduce the worker's troubles proportionately, so that each mile she didn't have to walk would mean one fewer blister, unwashed dish, and reprimand. What will the poor worker give up to get a one-mile ride, given that she still has five miles to walk? Probably not much. After all, the sixth blister, unwashed dish, and reprimand tends to be drowned out, like a shout in a riot, by the other five anyway.
But now imagine she has just been given a five-mile bus ride, free. She has only one mile left to walk. What will she give up to get a one-mile ride now? Probably much more than in the first scenario because the difference between the discomfort of one blister, unwashed dish, and reprimand and the discomfort of none is far greater than the difference in discomfort between six and five. If the effect of getting a one-mile bus ride in the first scenario is like that of quieting a shout in a riot, in this scenario the effect of the one-mile bus ride is like that of quieting a shout in an otherwise quiet street.
The psychological phenomenon at work here has long been recognized and studied. Human attention tends to diminish progressively the impression made by successive stimuli. Hence the lesson of the walk to work appears to be generalizable. What holds for miles on the bus, and for the dollars that buy those miles, holds broadly for goods that are serving to relieve misery: The benefit grows faster than the consumption. The least useful bit of the good is the first, and the most useful bit is the last. In economists' jargon, the marginal utility of goods that serve to relieve misery is increasing rather than diminishing.
This simple insight casts a strong light on the conduct of the poor, because poor people, by definition, typically consume at low levels, where goods serve to relieve unhappiness and not to bring positive satisfaction. That means that very poor people typically benefit less than moderately poor people from small increases in consumption — not more. Given this crucial fact, their underemployment should hardly be surprising. One mile's bus fare will be worth very little sweat to someone with five miles left to walk, and certainly less sweat than one mile's bus fare would be worth to someone with only a couple of miles to go. In a word, the nonwork of the poor may be rational because of poverty itself. For the very same reason, we should expect serious poverty to weaken theinvestment motive for saving, including the willingness to invest in education.
Poverty can be expected to depress saving for another reason too: Contrary to the classical model, it is smoothing consumption, not letting it vary, that wastes the benefit of resources when one has insufficient amounts. Go back to the worker and her six-mile walk. If she has six miles' worth of bus fare that has to last her for two days, she will get more relief over all by spending her bus fare on one day than by saving half the money overnight and riding three miles each day. For we know that the relief from riding three miles only on a given day will be less than half as great as the relief from riding all six miles at once.
Many people find this view obvious once they hear it and wonder why it is not conventional wisdom. One reason may be that earlier versions (one proposed by economists associated with the University of Leiden, another by Milton Friedman and L.J. Savage) failed to stress how well the view is supported by everyday experience. Whatever the roots of the mistake, the fact that the marginal utility of goods that relieve misery is increasing and not diminishing should change our approach to poverty.
Two items from a longer list:
First, the insight should increase our regard for the Earned Income Tax Credit program and other net wage supplements. Conventional wisdom gives these programs just two cheers because it fears they press on work motivation in opposite directions at the same time: up by making hours of work more worthwhile, but down by diminishing the satisfaction to be had from a next dollar of earnings. But the downward pressure is a myth. Where dollars are buying relief, the more dollars one has, the greater the benefit from getting another dollar — and from the work required to earn that dollar. Three cheers, not two, for the EITC.
Second, we should reopen the welfare debate that preoccupied liberal and conservative poverty reformers during the 90s. Having agreed that giving poor people resources undermines their motivation for self-help, the liberal and conservative camps fell to wrangling over whether generosity or maintaining incentives ought to be the top priority. (The liberals lost.) But the choice between generosity and maintaining incentives is a false one if generosity actually enhances the motivation for work and investment — by increasing the relief that poor people stand to get from the next dollar.
It's time to take another look at no-strings welfare for the truly poor, this time on pragmatic grounds rather than philosophical ones.
Charles Karelis is research professor of philosophy at George Washington University and former president of Colgate University. This essay is adapted from his book The Persistence of Poverty: Why the Economics of the Well-Off Can't Help the Poor, recently published by Yale University Press.
— Charles Karelis
Chronicle of Higher Education
2007-06-29
INDEX OF OUTRAGES
Pages: 380
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