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The Persistence of Poverty: It’s Complicated (Part 7)

Summary:
If Karelis fails to explain the persistence of poverty, what does?  Let’s return to his six competing theories: (1) apathy, (2) fragmentation of the self (which economists might call “hyperbolic preferences”), (3) akrasia (self-control problems), (4) restricted opportunity, (5) unusual preferences, and (6) perverse policies.  How do they really hold up? (1) apathy.  I don’t see this as a conceptually independent explanation.  Outright apathy is a special case of either (a) hyperbolic preferences or (b) unusual preferences.  (Though in a way, you could call the Karelis model a kind of apathy story, since the poor are able to improve their own situation, but decide the gain is not worth the pain).  The appearance of apathy could also stem from perverse policies. (2)

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The Persistence of Poverty: It’s Complicated (Part 7)

If Karelis fails to explain the persistence of poverty, what does?  Let’s return to his six competing theories: (1) apathy, (2) fragmentation of the self (which economists might call “hyperbolic preferences”), (3) akrasia (self-control problems), (4) restricted opportunity, (5) unusual preferences, and (6) perverse policies.  How do they really hold up?

(1) apathy.  I don’t see this as a conceptually independent explanation.  Outright apathy is a special case of either (a) hyperbolic preferences or (b) unusual preferences.  (Though in a way, you could call the Karelis model a kind of apathy story, since the poor are able to improve their own situation, but decide the gain is not worth the pain).  The appearance of apathy could also stem from perverse policies.

(2) fragmentation of the self.   If people really had this problem, they would be happy to sign contracts today to limit their behavior in the future.  While there is some demand for such services (see stickK.com), it’s a rounding error.

(3) akrasia.  Again, if people really had self-control problems, they would be happy to sign contracts today to limit their behavior in the future.  Few do, so I chalk 95% of “I can’t help myself” rhetoric to Social Desirability Bias.

(4) restricted opportunities.  At least globally, this story explains most poverty.  Most people can’t legally work in the First World.  Even in the First World, housing regulation forces low-skilled workers to pay most of their income on rent if they want to live in high-wage areas.  Migration and housing regulation aside, the poor in rich and poor countries alike have below-average IQs, health, family wealth, and many other disadvantages.

(5) unusual preferences.  We shouldn’t think of the poor as having preferences that the non-poor lack; instead, we should think of the poor as having unusually intense versions of ordinary preferences.  Almost all humans are somewhat lazy, somewhat unwilling to save, somewhat frustrated by school, somewhat inclined to get drunk, somewhat eager for impulsive sex, and even somewhat inclined to commit crimes.  However, the persistently poor exhibit these traits strongly.  Indeed, their preferences are even more intense than they look, because being poor is a mighty reason to work hard, save, finish school, abstain from intoxicants, abstain from impulsive sex, and obey the law.

So are the poor durably happy with their decisions?  I doubt it.  The simplest story is that the poor have high time preference; they intentionally sacrifice long-run happiness for short-run happiness.  Other plausible stories, however, are that the poor put relatively more weight on pride, subcultural conformity, group identity, and the like.  In short, they’d rather be stubborn than happy.

Along these lines, Karelis interestingly remarks:

Atypical preference theorists who want to change the poverty-prolonging behaviors are obliged to defend their goal. For by hypothesis, working, finishing school, saving, and so on would cost the poor people whose behavior is to be changed some of the meager satisfaction they get from behaving as they do, as long as their preferences are what they are. One approach to justifying such interventions is to assert that these poor people literally do not know what is good for them, while the interveners do; but given the philosophical temper of our day, this position is rarely maintained now, at least not in so many words.

My own view is even less consistent with the “philosophical temper of our day.”  While I think that the persistently poor should change their preferences, I oppose coercive efforts to change them.  Government ought to end the perverse policies that so restrict the opportunities of the poor… then tolerate the poverty that remains.  In short, stop depriving the poor of their freedom to help themselves – and stop depriving the non-poor of their freedom not to help strangers.

(6) perverse policies.  Karelis is quite correct to observe that the poor make seemingly irresponsible decisions even in societies with no welfare state to speak of.  However, he does nothing to undermine the standard view that the welfare state amplifies irresponsibility.

Why then does persistent poverty exist in the modern world?  Here’s my preferred breakdown for the planet:

Karelis model: 0%

apathy: 0%

fragmentation of the self: 0.2%

akrasia: 0.8%

restricted opportunities (including government policies that are not intended to help the poor): 73%

unusual preferences: 19%

perverse policies (i.e., government policies that are intended to help the poor): 7%

For First World countries like the U.S., however, I’d offer radically different numbers:

Karelis model: 0%

apathy: 0%

fragmentation of the self: 0.5%

akrasia: 1.5%

restricted opportunities (including government policies that are not intended to help the poor): 30%

unusual preferences: 50%

perverse policies (i.e., government policies that are intended to help the poor): 18%

I’d be curious to know how Karelis himself would do these breakdowns…

Bryan Caplan
Bryan Caplan is Professor of Economics at George Mason University and Senior Scholar at the Mercatus Center. He has published in the New York Times, the Washington Post, the Wall Street Journal, the American Economic Review, the Economic Journal, the Journal of Law and Economics, and Intelligence, and has appeared on 20/20, FoxNews, and C-SPAN. Bryan Caplan blogs on EconLog.

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