Monday, April 14, 2008

Cause of poverty is poverty?

Mark Thoma draws attention to a Boston Globe article about an alternate explanation for poverty by Charles Karelis, a philosopher and former President of the Colgate University.

Arguing that traditional economics does not help understand poverty, it writes, "When we're poor our economic worldview is shaped by deprivation, and we see the world around us not in terms of goods to be consumed but as problems to be alleviated. This is where the bee stings come in: A person with one bee sting is highly motivated to get it treated. But a person with multiple bee stings does not have much incentive to get one sting treated, because the others will still throb. The more of a painful or undesirable thing one has (i.e. the poorer one is) the less likely one is to do anything about any one problem. Poverty is less a matter of having few goods than having lots of problems. Poverty and wealth, by this logic, don't just fall along a continuum the way hot and cold or short and tall do. They are instead fundamentally different experiences, each working on the human psyche in its own way."

Karelis argues that poverty introduces a diminishing marginal utility to putting in effort, "One doesn't have enough money to pay rent or car insurance or credit card bills or day care or sometimes even food. Even if one works hard enough to pay off half of those costs, some fairly imposing ones still remain, which creates a large disincentive to bestir oneself to work at all."

Karelis's arguement is therefore not to worry too much about the fragility of the work ethic among the poor. This goes against the traditional neo-classical explanation that more social security like unemployment benefits and aid to poorer countries, generate moral hazard concerns by making the poor dependent on the dole or aid, and thereby undermines their work ethics.

Therefore, reducing the number of economic hardships that the poor have to deal with will actually make them more, not less, likely to work, just as repairing most of the dents on a car makes the owner more likely to fix the last couple on his own. Simply giving the poor money with no strings attached, rather than using it, as federal and state governments do now, to try to encourage specific behaviors - food stamps to make sure money doesn't get spent on drugs or non-necessities, education grants to encourage schooling, time limits on benefits to encourage recipients to look for work - would be just as effective, and with far less bureaucracy.

While the empirical data to make a strong case in favor of Karelis's arguement is limited, its logical foundation is more impressive.

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