The Persistence of Poverty: Karelis’ Practice

Now that he's explained the nature of persistent poverty, Karelis is ready to end it forever. His solution is simplicity itself: Give the poor everything they need. Once their needs are met, they 'll start acting like regular middle-class folks in order to satisfy their wants. Or in his terminology, once you give the poor enough to pay for all their relievers, they will prudently strive to acquire their pleasers. Thus, even though many of Karelis' statements will likely appall left-wing readers, his policy conclusions are ultra left-wing. Contrary to virtually everyone on Earth, for example, Karelis affirms that unconditional welfare benefits increase work effort:

In particular, I look back at the debate surrounding the 1996 U.S. welfare reform, concluding that the policy choice between preserving work incentives and guaranteeing income, however agonizing, is not a choice that had to be made. For no-strings welfare of the old type had a positive effect on work incentives, contrary to the nearly universal consensus of policymakers. In light of this, I raise the possibility that no-strings assistance should remain in the anti-poverty arsenal, while granting that this is politically improbable.

More generally:

Should we be “hard noses” who are prepared to let non-workers go unhelped in order to preserve incentives for self-help, or should we be “bleeding hearts” who give non-workers no-strings help, despite the fact that this will make them less likely to help themselves? It should be evident that both sides of the debate collapse if letting poor non-workers go unhelped does not preserve work incentives anyway. Neither the principle that helping should be sacrificed to preserving incentives nor the opposing principle that incentives should be sacrificed to helping is worth defending if the two things are not in tension in the first place. And they are not. For the belief that tough love motivates the poor rests on the assumption that income dulls the appetite for more income at all income levels. But on the contrary, the marginal utility of resources is rising amid true scarcity. Therefore the impact of small income increases on the number of hours a poor person will want to work at any given wage will be positive and not negative. Conversely, the impact of toughening welfare programs will be to reduce the number of hours the recipient will want to work

To Karelis' credit, however, he is not merely rationalizing classic leftist views. His model implies, for example, that policymakers should not start by helping the worst-off. Instead, they should start with the most affluent of the poor, because they get the largest benefit per dollar. He bites this bullet with the full strength of his jaw:

A critic might object at this point that our utility function could be used to justify putting the least poor people ahead of the very poorest people in distributing assistance, since the very poorest people, by reason of their poverty itself, are the least efficient at extracting relief from a given quantity of resources. Putting the least poor of the poor ahead of the poorest is sharply at odds with “to each according to his needs” and with many people’s intuitions. But granting that this probably “feels wrong” to you, perhaps moral feelings are an untrustworthy guide here. For one thing, most of the allocations that you and I make are allocations among non-poor, non- deprived claimants, and among the non-deprived , the least well-off claimant does normally have the highest marginal utility. At least this is true according to the function we have proposed in this book. Perhaps, then, we should not trust our feelings in a kind of case so different from the familiar type.

Lest you doubt his leftist credentials, however, Karelis immediately adds:

Second, what would feel really right, to me at least, is relieving poverty in America completely—transferring half an ounce from those with half a pound. But given that that option is politically impossible, maybe the sub-optimal choices, such as the choice of which poor people should get the tenth of an ounce that is in fact being transferred, are simply confusing to moral common sense.

In the end, though, Karelis prizes philosophical clarity above ideological loyalty. Consider this remarkable passage:

Opinion leaders in the United States and other advanced industrial nations have often been warned against casting the objective conditions of the poor in a positive light, for instance by comparing them with worse conditions elsewhere in the world. The fear is that putting a positive spin on people’s economic circumstances will tend to reduce the pressure for improvement. In light of our hypothesis we can partly agree and partly disagree. Suppose it were possible to move poor people from a state of misery to a state of high satisfaction by means of rhetoric, without changing their objective conditions. Doubtless that would lessen their eagerness to see their situation made better, whether through political change or their own work or some other means. But equally, getting people to see adverse circumstances as very, very bad could have the same effect. For as we noted in the last chapter, the person who sees an income of $20,000 as “two stings” will be more likely to exert himself to improve it a little than someone who sees an income of $20,000 as “six stings.” For how much energy is it worth to go from six stings to five?

These considerations cast an interesting light on recent history. Thirty- five years ago the speeches and writings of American civil rights leaders often framed or interpreted the circumstances of their audiences by “comparing them up”—measuring them against the circumstances of the middle-classes and the upper-middle classes, or even against the images of the good life found within the American Dream. This was openly done for the sake of energizing audiences with discontent. The goal was reasonable enough, but according to our theory, the strategy was probably counterproductive. For on our hypothesis any discontent that was added by the speeches would have de -energized audiences—by reducing the marginal relief to be expected from a small improvement in objective circumstances. It might even be argued that this rhetoric worsened the poverty problem it was meant to help relieve.

Now that Karelis' theory is on the table, I'll spend next week assessing it. To foreshadow, I think he underrates most of the competing theories of persistent poverty, but is still entirely correct to claim that the poor would be markedly richer if they adopted the norms of the middle-class. I also think he's right that many goods exhibit increasing marginal utility. He's wrong, however, to think that the poor face increasing marginal utility markedly more often than the rich. On reflection, increasing marginal utility situations are ubiquitous at all income levels. Above all, there is little sign that the poor exhibit increasing marginal utility for their basic needs. Karelis' claims about the work-inducing effects of unconditional transfers thus aren't merely counter-intuitive; they're absurdly wrong. Furthermore, contrary to the subtitle of his book, the economics of the well-off can easily help the poor. The excuses need to stop, and the revival of bourgeois virtue needs to begin. By definition, we should never blame the victim. But healthy poor people who don't work, don't save, abuse intoxicants, and commit property and violent crime aren't victims. They are the abusers of the real victims - their children and taxpayers.

The post The Persistence of Poverty: Karelis' Practice appeared first on Econlib.

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