Sunday, March 30, 2008

The sting of poverty

from the Boston Globe

What bees and dented cars can teach about what it means to be poor - and the flaws of economics

By Drake Bennett

IMAGINE GETTING A bee sting; then imagine getting six more. You are now in a position to think about what it means to be poor, according to Charles Karelis, a philosopher and former president of Colgate University.

In the community of people dedicated to analyzing poverty, one of the sharpest debates is over why some poor people act in ways that ensure their continued indigence. Compared with the middle class or the wealthy, the poor are disproportionately likely to drop out of school, to have children while in their teens, to abuse drugs, to commit crimes, to not save when extra money comes their way, to not work.

To an economist, this is irrational behavior. It might make sense for a wealthy person to quit his job, or to eschew education or develop a costly drug habit. But a poor person, having little money, would seem to have the strongest incentive to subscribe to the Puritan work ethic, since each dollar earned would be worth more to him than to someone higher on the income scale. Social conservatives have tended to argue that poor people lack the smarts or willpower to make the right choices. Social liberals have countered by blaming racial prejudice and the crippling conditions of the ghetto for denying the poor any choice in their fate. Neoconservatives have argued that antipoverty programs themselves are to blame for essentially bribing people to stay poor.

Karelis, a professor at George Washington University, has a simpler but far more radical argument to make: traditional economics just doesn't apply to the poor. When we're poor, Karelis argues, 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. At some point between the two, people stop thinking in terms of goods and start thinking in terms of problems, and that shift has enormous consequences. Perhaps because economists, by and large, are well-off, he suggests, they've failed to see the shift at all.

If Karelis is right, antipoverty initiatives championed all along the ideological spectrum are unlikely to work - from work requirements, time-limited benefits, and marriage and drug counseling to overhauling inner-city education and replacing ghettos with commercially vibrant mixed-income neighborhoods. It also means, Karelis argues, that at one level economists and poverty experts will have to reconsider scarcity, one of the most basic ideas in economics.

"It's Econ 101 that's to blame," Karelis says. "It's created this tired, phony debate about what causes poverty."

In challenging decades of poverty research, Karelis draws on some economic data and some sociological research. But, more than that, he makes his case as a philosopher, arguing by analogy and induction. This approach means that he remains relatively unknown, even among poverty researchers. The book in which he laid out his argument, "The Persistence of Poverty: Why the Economics of the Well-Off Can't Help the Poor," wasn't widely read when it was published last year.

A few, though, have taken notice, and are arguing that Karelis does have something important to say.

"There's not much evidence in the book, and there are a lot of bold claims, but it's great that he's making them," says Tyler Cowen, an economics professor at George Mason University. It "was a really great book, and it was totally neglected."

The economist's term for the idea Karelis takes issue with is the law of diminishing marginal utility. In brief, it means the more we have of something, the less any additional unit of that thing means to us. It undergirds, among other things, how the US government taxes people. We assume that taking $40,000 in taxes from Warren Buffett will be a lot less onerous to him than to an elementary school teacher, because he has so much more to begin with.

In many cases, Karelis says, diminishing marginal utility certainly does apply: Our seventh ice cream cone will no doubt be less pleasurable than our first. But the logic flips when we are dealing with privation rather than plenty. To understand why, he argues, we need only think about how we all deal with certain familiar situations.

If, for example, our car has several dents on it, and then we get one more, we're far less likely to get that one fixed than if the car was pristine before. If we have a sink full of dishes, the prospect of washing a few of them is much more daunting than if there are only a few in the sink to begin with. Karelis's name for goods that reduce or salve these sort of burdens is "relievers."

Karelis argues that being poor is defined by having to deal with a multitude of problems: 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.

"The core of the problem has not been self-discipline or a lack of opportunity," Karelis says. "My argument is that the cause of poverty has been poverty."

The upshot of this for policy makers, Karelis believes, is that they don't need to fret so much about the fragility of the work ethic among the poor. In recent decades, experts and policy makers all along the ideological spectrum have worried that the more aid the government gives the poor, the less likely they are to work to provide for themselves. David Ellwood, an economist and the dean of Harvard's John F. Kennedy School of Government, has called this "the helping conundrum." It was this concern that drove the Clinton administration's welfare reform efforts.

But, according to Karelis, that argument is exactly backward. Reducing the number of economic hardships that the poor have to deal with 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. (One federal measure Karelis particularly likes is the Earned Income Tax Credit, which, by subsidizing work, helps strengthen the "reliever" effect he identifies.)

Few economists are familiar with Karelis's work, and when it's presented to them, they tend to be skeptical of its explanatory power. If Karelis is right, we should see even more defeatist behavior than we do from the poor, says Kevin Lang, chairman of the Boston University economics department and author of "Poverty and Discrimination." Plus, he argues, there's little evidence that simply making poor people less poor increases their work ethic - and some evidence that it does the opposite. In the early 1970s, a large-scale study gave poor people in four cities a so-called "negative income tax," a no-strings-attached payment based on how little money they made. The conclusion: the aid tended to discourage work.

Karelis responds that the data from that experiment is in fact quite ambiguous, and there has been debate among economists over how to interpret the results. But ultimately, he believes, the strength of his arguments is less in how they fit with the economic work that's been done to date on poverty - much of which he is suspicious of anyway - but in how familiar they feel to all of us, rich or poor.

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