Book  review  by  Mrunal  Dubey  

The  Persistence  of  Poverty:  Why  the  economics  of  the  well  -­‐  off  can’t  help  the  poor  

       

       

Self-­‐destructive  behavior  of  the  poor    In earlier times, poverty was considered to be of

a phenomenon of the natural order. But today,

the idea that poverty is persistent is itself

persistent. A quote was found in the book of

Deuteronomy1, and it says, “For the poor shall

never cease out of the land”. Jesus echoes this

when he says shortly before his death. “For the

poor always ye have with you; but me ye not

have always”. Even the western economists and

writers’ firmly believe that poverty is persistent

rather than natural. The whole idea is generally

considered as a puzzling anomaly, rather than a

straightforward behavior crisis.

Why do people often stay poor? Amidst of all

the answers there exist some behavioral factors

like, not working, not finishing the school, not

saving for a rainy day, abusing alcohol, taking

risks with the law. Of course not everyone fails

to do this, but poor. They take up more than their

shares of non-participation and hence adding up

to the poverty. For instance, US poverty rate has

been same for forty years, despite the significant

increase in the per capita domestic product.

But this whole scenario, urges us to think that

what causes them to be held up for these

failures? According to our wisdom, a few dollars

would be of more importance to the poor than

the rich.

                                                                                                               1 “Deuteronomy, book of ”, In A dictionary of Bible, Ed. W.R.F. Browning. Oxford Biblical Studies.

About  the  author  

Charles Karelis is Research Professor of

Philosophy at The George Washington

University. Formerly professor of philosophy at

Williams College, director of the Fund for the

Improvement of Postsecondary Education, and

president of Colgate University, he lives in

Washington, D.C.

He has a longstanding interest in Public Policy

and the Psychological foundations of

Microeconomics. He has earned his Bachelor’s

degree from Williams College in 1966 and his

doctorate from Oxford University in 1972.

Karelis tries to persuade that the idea of poverty

get off on the wrong foot, because what appears

to be irrational is not; when the whole idea of

economic rationality is understood properly, the

poverty emerges as being straightforwardly

rational.

Revisiting  inefficiency  argument   The inefficiency argument says that the less of a

good one consumes, the greater the satisfaction

on gets from a little bit of it. From this statement,

one can derive that those who have a little will

try to achieve more by putting extra efforts.

Thus, the value added to these extra efforts is

always more. But this is not with case of the

poor, to verify this puzzle the author brings out

the required modification of the consumption

assumption, which generally increases with the

extra unit where in the author says, the marginal

utility of the consumption declines along with

the consumption levels. Hence, the poor

generally prefers to vary consumption and take

huge risk in order to break free from poverty.

For instance, the temptation to down a whole

bottle of alcohol, rather than sip a glass of wine,

maybe stronger when you have a lot of sorrows

to drown. Similarly, a lot of poor people engage

themselves in playing lottery, even though the

lottery offers a negative expected return. They

play because they stand a chance of life

transforming win.

The argument is fitted well. It says goods, and

hence work, means most to the poor and to have

a smooth and steady consumption is required.

The whole idea of marginalism is satisfaction-

efficient allocation. The foundation of

marginalism is the law of diminishing marginal

utility of consumption. This is the great principle

through which the author tries to explain

informally by saying that have more of a good,

would definitely decrease the satisfaction level

oozing form it. Thus the law states that

consumption increases by equal amounts, the

addition to the consumer’s positive experience or

relief (satisfaction) that are produced by these

increases get smaller and smaller. The author

here tries to flag the misunderstanding of the law

by saying that consumption eventually becomes

counterproductive and burdensome. While that

may be true, the law itself does not deny that

additional consumption continues to bring

additional positive experiences or relief at high

levels. Instead, it asserts that the additions

caused by equal increases in consumption

diminish.

Karelis in order to justify his argument quotes an

example extremely worth quoting from the

English philosopher and social thinker Jeremy

Bentham (1748-1832), who clarified the law of

diminishing marginal utility because it evokes

from the common experience. “The matter of

wealth is of no value, but in proportion to its

influence in respect of happiness. Multiply the

sum of man’s property by 2, by 10, by 100, by

1000, there is no the smallest reason for

“If  you  are  badly  off,  then  a  little  more  to  consume  is  almost  worthless,  but  having  substantially  more  is  disproportionately  

beneficial.”  

supposing that the sum of his happiness is

increased by any such proportion, or in anyone

approaching to it: multiply his property by a

1000, it may be still be matter of doubt, whether,

by that vast addition, you add as much to his

happiness as you take away from it by dividing

his property by 2, by taking from him but the

half of it.”2 At its core, the resources means most

to those who have the least. The question of

allocation is quietly misunderstood. Instead, of

the talking about the deeds or the conducts does

or does not meet the necessary criteria of

efficiency, the reforms should be talking and

dealing with the question, whether the necessary

criteria are the right ones?

Of course, the crucial question here is why

marginalism does not apply to the poor. Why is

it not worth for the poor to earn a few extra

dollars? To answer the question, Karelis argues

by analogy. A poor person is like someone who

has suffered through multiple bee stings. For a

person, who is stung only once, applying an

ointment would definitely be very valuable

(reliever). But for someone, who is stung more

than once, say five to six times, than the

application of ointment to anyone place of sting

won’t be of much relief because the other stings

are still oozing pain (pleaser). As he explains in

the book:

“The person with seven bee stings … would not

sacrifice much to relieve the sting on his hand,

seeing that the pain of it was nearly drowned out

by the pain of the six stings on his body. This

                                                                                                               2 Rationale of Judicial Evidence (London, 1827) 5:656, quoted in Stigler, “Adoption,”74.

would seem to be the position of very poor

people, for whom work, schoolwork, and (in a

much different way) moderation in alcohol use

constitute sacrifices that would buy them too

little felt relief to be worth making, so many are

their troubles.”

Replacing  the  Law  of  Diminishing  Marginal  Utility    Substituting ‘pleaser’ with a ‘reliever’: A law of

increasing marginal utility. For instance, paying

off a stack of ten household bills, payment of the

first will give little relief, while the last will

surely give a great deal. The point here is that the

law of diminishing marginal utility has been

applied to pleasers, and thus has historically

given much more importance. In simple terms to

distinguish between the both wouldn’t be enough

according to Karelis. But we should understand

poverty and use both reliever at low level of

consumption and pleaser at high level of

consumption. Thus reliever/pleasers acts like a

pure reliever when insufficient amount is been

consumed, which is to say increasing marginal

benefit. But they act just the opposite i.e. like

pure pleasers when more than sufficient amount

is being consumed, which is to say they show

diminishing marginal utility.

Karelis examples and comments proposed new

implications for political activity: those who are

less oppressed will fight back while truly

wretched won’t, since the latter group has

become so burdened up with the problems that

yet another one makes little substantial

difference. For instance, consider housing.

Suppose we take the perspective of a couple

whose house has a bed room for them and one

for each od their 3 children, plus adequate room

for entertaining and other functions besides.

Clearly they are consuming or housing in the

more than sufficient range. Their house is a

source of positive experience. As each child

leaves for college say, the amount of space

available for the use of the couple goes up by

roughly equal amounts, but probably their

enjoyment of the house goes up by smaller and

smaller amounts. To take a small but

representative aspect, the new hobbies that can

now be pursued because there are specialized

spaces for them (sewing, exercise, painting, etc.)

will themselves yield smaller and smaller

amount of additional pleasure, if only because

the more there are, the less attention can be paid

to each one.

But now imagine a couple whose dwelling is a

one-bedroom house that is barely adequate for

them. If a child arrives, then, given the crowded

conditions, the couple’s privacy is much

reduced, their peace is disturbed, and they may

have to start sleeping in shifts. Whatever the

compensating joy of the parenthood may be,

these are impressive deteriorations in their

comfort. By the time the child number six

arrives, the couple may hardly notice the further

deterioration in their situation as a result. One

more loud noise outside the bedroom door will

not make much difference. One more child in

one’s path as one stumbles to the bedroom at

night may not add much misery. Accordingly, as

the children grow up and move out, and space

per inhabitant goes up, the first child to leave

may not subtract much discomfort either. But

when the sixth child finally moves out, undoing

the impressive deterioration created by the first

baby, the relief may be enormous. This story

pulls together reminders of common experience

to show that while the marginal benefit of

housing space per inhabitant may be diminishing

at high levels, it is rising at low levels. This is

exactly what has been observed amongst the

very poor, as they become less likely to exert

themselves for financial gain than the poor, but

not very poor. Because they are so impoverished

that an hour of more work with more income

makes a very little difference in the true sense.

Thus the poor individuals engage themselves in

big five non participating activities because they

are rational. In simple terms, poorest need more

quick returns, and those who are so poor will act

differently than those who are only somewhat

poor.

The question emerges is, whether or not

avoiding pain and problem is considered as

rational as seeking out pleasure and satisfaction.

While economic theory has successfully and

traditionally defined poverty sustaining factors

and behaviors as irrational, access fewer

resources adds more to the problem. After all,

why bother to solve one bee sting, when you

have all the rest still keeping you in pain?

Elsewhere, however, Karelis takes a different

view, arguing that poor people harm themselves

when they might do to relieve it. In effect, the

hypothetical Asian immigrant’s reaction that a

$20,000 job is a step in right direction appears

preferable to the hypothetical African

American’s reaction that a $20,000 job would

offer nothing but a slight change.

When it comes to offering solutions to the

increasing marginal utility amidst scarcity, or to

offset the behavior of the poor, Karelis mostly

relies on the course of action adopted by

American social policy: that is, the policy known

as “making the work pay,” which seeks to

incentivize the work, so that it can held itself a

more attractive option for low-income people

through subsidies and other provisions, whose

benefits are totally subjected to working.

But Karelis also supports no-strings assistance to

the poor: that is, aid or assistance that is

unconditional on any efforts by the poor to

improve themselves. After all, if poor are given

funds to buy ointment for the three stings then

they are more likely to work to purchase on their

own for the rest three, having total of six stings.

To make this happen, Karelis must take back the

comment on unconditional assistance, because it

discourages work. Why work, if you will be paid

even if you don’t work?

So, what’s the point in all of this? The goal is to

make poverty reducing behavior, rational. The

broader question is how policy makers can

change the poverty sustaining behavior. Culture

comes to play: two groups might be equally

poor, but some might take up the lower paid jobs

in order to get ahead because they come form a

impoverished community, while others will not.

So although, it’s relative, it is still generalizable

because cultures impact the behavioral aspect of

the person. An offering to non-workers is much

like a practice of offering aid to impoverished

countries who sits back and waits for the aid

coming to them.

His conclusion centers on several policy

recommendations: like targeting low-income

students with job specific education programs,

inverse tax incentives for saving and bulk

payouts. Most are prescriptions for deterring

crime: raise the odds of punishment, make

sentences longer, and improve salaries to create

incentives.

Economists identify five patterns, which

contribute to poverty:

• Not working much for pay

• Not having education

• Not saving for the rainy day

• Abusing alcohol

• Taking risks with the law

Within the conventional economic theory the

behavior of the poor is inconsistent. According

to Karelis and his theory, he argues that many of

conventional theories are not kind to the poor,

and he suggest that poor people engage

disproportionately in the poverty-prolonging and

poverty worsening behaviors because they are

poor – and rational. He further argues that

qualities such as apathy, laziness, and weakness

of the will are invoked to explain the observed

behavior, which seems quite convincing to me. If

we apply Karelis theory of increasing marginal

utility, the poor receive a significant boost in

sanity and rationality when it comes to

explaining their economic behavior. This is

certainly attractive to the advocates of the poor,

and anyone else who doesn’t perceive much

more moral difference between the poor and the

rich.

Summing up, this book is very lively. It ranges

from the facts of life among the American

underclass to deep philosophical puzzles about

what does and does not count as ‘rational’

behavior, and will make economists,

philosophers, and ordinary engaged citizens

rethink just about everything they took for

granted about the causes and the cures of

poverty. I agree with the notion of Karelis, who

charges that how the conventional explanations

of poverty are mistaken, and the policies built

upon them are doomed to fail. I also agree with

the link established between consumption and

satisfaction and from here he builds up to

explain what keeps poor people poor. Above all,

he shows this fresh perspective can re-inspire the

long stalled campaign against poverty

It can make more sense to give money to people

on the verge of leaving poverty, rather than

people deeply mired in poverty. The formal

transfers will get people onto normal marginal

utility curves, but the deeply poor will squander

their new wealth, as doesn’t much alleviate their

happiness.