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 present several posts 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.
READER COMMENTS
Robert Coffey
Aug 12 2019 at 10:46am
As I pointed out in a previous thread, this solution is contrary to the experience of sports stars and lottery winners.
Floccina
Aug 12 2019 at 3:16pm
The only reason I see to give money to the poor is so that they can consume more, anything else is wishful thinking. As Robert Coffey points out above some people are like bottomless pits. Some entertainers along with the athletes and lottery winners that he mentions above.
Dylan
Aug 13 2019 at 1:42pm
Is there widespread evidence that sports stars from poor backgrounds spend all of their money and end up poor any more than say those from middle class backgrounds?
John Alcorn
Aug 12 2019 at 10:47am
Re:
Bryan, If you are correct that (a) many goods have increasing marginal utility and (b) there is little evidence that the poor have increasing marginal utility for basic needs, then what Karelis claims is empirically mistaken, but not absurd.
Nick Ronalds
Aug 12 2019 at 11:27am
Bryan what you say in your last paragraph makes sense, e.g., he too-easily dismisses competing explanations for poverty. An additional weakness of his prescription is complete lack of empirical evidence for the proposition that the poor would adopt bourgeois habits once their needs have been met. Has it been tried, to the extent he proposes, at any scale, anywhere? Finally, his logic implies that no one among the working better-off would be tempted to chuck the job and take the non-working alternative, if it really provides “everything needed”. What could go wrong?
nobody.really
Aug 12 2019 at 11:32am
Herman Melville
John Alcorn
Aug 12 2019 at 12:06pm
Re:
Compare Robin Hanson (“The Persistence of Poverty,” Overcoming Bias, May 9, 2019):
If Belmont stops making excuses for Fishtown, will Fishtown then emulate Belmont?
Or: If Belmont ends subsidies to Fishtown, will Fishtown’s culture respond to the change in incentives and willy nilly become like Belmont’s culture?
Or: Can cultural entrepreneurs in Fishtown inspire norms that uplift from poverty?
If Bryan and Robin are both right, then the answers aren’t easy!
I come back to my point that persistence of poverty is only half the story—Many individuals do overcome and escape poverty!
Matthias Görgens
Aug 13 2019 at 1:39am
Somewhat perversely, the more open a society is for smart, hardworking people to escape poverty, the harder the cases of remaining poverty.
In a highly restricted society, you can work wonders by providing some opportunity to some young enterprising people. Feels very heartwarming. In a society that’s already open, on average a bit of extra opportunity and intervention won’t make much of a difference.
(Of course, creating the open society is still a very good idea. And giving poor people money to help them consume more might still be a good thing.)
Hazel Meade
Aug 15 2019 at 5:04pm
I think there might be better examples of goods with increasing marginal utility at higher income levels than the examples given. I’m thinking again, of what Karelis would consider “relievers”. For instance vacations. Poor people can’t afford to take a vacation, but generally that’s the least of their worries – you have to get to a certain income level before taking a vacation is even something that starts to become a significant “reliever”. And then maybe you start off only being above to afford a “staycation” – you can’t afford plane tickets and can’t afford a fancy hotel. So why take days off if you can’t afford to go anywhere, especially if you live in a tiny apartment? Of course, above a certain point, fancier vacations become “pleasers” with diminishing marginal utility. But at the point where vacations become slightly feasible they don’t provide much in the way of relief. You have to earn enough to actually do something with your vacation time to make it worth taking.
I think home ownership falls in this category too. Home ownership is a very big “reliever” but only AFTER the home is paid off. You don’t get the payoff of owning the home and not having to pay rent for decades. Each little incremental mortgage payment doesn’t provide much relief. In other words the marginal utility is not only upward but more like a hockey stick – you get all of the relief at the end, 30 years in the future, and none of it right now. Most really poor people can’t come anywhere near buying a home, so this one only kicks in for working class or lower-middle class people.
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