My Last Word on Karelis
In my critique of Karelis, I made the following argument against his view that giving the poor additional free money actually makes them work harder:
In any case, you don’t need empirical research to see the absurdity of Karelis’ position. If unconditional transfers increased work effort, then current recipients of these transfers – many of whom don’t work at all – would work even less if the government cut them off completely. Are we really supposed to believe that able-bodied welfare recipients would voluntarily starve to death – and watch their children starve to death – rather than work at McDonald’s?
This is a straw man. As my book clearly states, the hypothesis of increasing marginal utility concerns the shape of the utility function for income levels between subsistence and sufficiency. I don’t discuss the utility of behavior to avert actual starvation. My sense is that the concept of utility is not well-suited to the consideration of life-or-death choices.
I was puzzled by this “as my book clearly states,” until Karelis pointed me to the book’s front matter. My bad; he did indeed foresee my objection:
Therefore the utility function for insufficient but above-survival level consumption that I give in chapters 5 and 6 may not be suitable for extrapolation to those who are just barely clinging to life. Perhaps the function is discontinuous as consumption crosses the threshold of literal survival. I am sorry to say I do not have a clear view on this question, and so my hypothesis should be understood as applying only to above survival-level consumption.
Ultimately, though, I think my counter-example remains devastating.
1. The “concept of utility” is extremely “well-suited to the consideration of life-or-death choices.” Consider the classic offer, “Your money or your life.” Or any extreme effort to convince someone to do your bidding. These are straightforward attempts to make the utility of non-compliance even worse than the utility of compliance.
2. All of Karelis’ arguments about the small gains of effort in dire situations clearly apply to life-or-death choices. People on the edge of starvation remain wretchedly miserable even if they find a little extra food. Saying that the concept of utility is not “well-suited” here just seems like an ad hoc attempt to reject a devastating counter-example to his central thesis.
3. Small point: Karelis should have made the critical point be “survival-level consumption for yourselves and people you care about,” not just “survival-level consumption.”
4. Big point: Most people don’t need to be anywhere near survival-level consumption to get highly motivated. In warm climates, for example, you don’t really need clothes or a home, but most of the poor still desperately want these goods. In other words, Karelis would have to carve out an exception not just for survival-level consumption, but 2x, 5x, or even 10x survival-level consumption. This is quite an epicycle for a theory he presents as parsimonious.
5. My objection is not merely theoretical. Since many current recipients of transfers don’t work at all, it seems like Karelis grants my policy point: If the government completely cut them off, even the First World poor would lack the funds for survival-level consumption, and hence would work harder. Probably a lot harder.