Ezra Klein: Can We Treat The Poor Like The Rich?

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August 07, 2007

Can We Treat The Poor Like The Rich?

Charles Karelis, the former head of Colgate University, says no. Rather, he argues we've been approaching poverty reduction bass-ackwards because we've been employing strategies that would work on poor people with the attitudes and incentives of non-poor people, but that fundamentally misunderstand the incentives of the folks who actually make up the impoverished. I haven't read the book, but Tyler Cowen summarizes some of its arguments this way:

if pains and troubles are high enough, extra pain and trouble just isn't so bad. You hardly notice it. But that overturns standard economic assumptions of diminishing marginal uitliity, and the rest of Karelis's model follows directly.

Poor enough people will accept risk in the downward direction rather than smoothing consumption, so they buy lots of lottery tickets. They also commit more crime, so they can have at least some joyous times, and they take lots of "stupid" chances. Yet the poor are not irrational or necessarily dysfunctional in terms of procedural rationality, but rather they are optimizing given constraints. [...]

The more the poor regard themselves as lagging the rich (rather than doing better than, say, their peers back home in Gujarat), the more stupid risks they will take. That's why poor immigrants are more value-maximizing than the poor that have lived in America a long time and adapted to American norms and expectations. The immigrants don't regard their burdens as insuperable and they are on standard downward-sloping marginal utility curves.

I think the issue of lagging the rich is less important than an individual's confidence in their own mobility. An immigrant from Gujarat is experiencing economic mobility in a very real and tangible way. Therefore, it's perfectly consonant with their experience that they can enjoy yet more economic mobility, and they should act accordingly. If you're convinced you can move up, you'll be willing to make more short-term sacrifices in order to assure your long-term trajectory.

Grow up in an inner-city ghetto surrounded by a lot of sticky poverty, however, and the odds for economic uplift might seem rather smaller. If you don't believe you can move up, then it's not necessarily worth engaging in the unpleasant short-term tasks necessary for economic advancement. People make sacrifices when they're convinced that they'll pay off. Without that assurance, why make the sacrifice?

August 7, 2007 in Economics | Permalink

Comments

Indeed, if I'm f**ked no matter what I do, then I'll do whatever helps get me through the day. The difference between slaves and the working poor is nominal; the system is the same.

Posted by: Scott from Baltimore | Aug 7, 2007 11:23:33 AM

Ezra is largely correct, but he seems to think the poor are wrong to think this way. As near as I can tell, we simply do not have a truly bankable method of social or economic advancement in this society that is available to everyone. College is just too expensive, and other than a few prodigy's and hard luck cases the good ones are exclusively the domain of the wealthy. Working hard won't get you anything but exploited in our economy, so you can't really work hard.

These are problems everywhere. These are not immutable issues that can't be solved. Our elite just like the preferential treatment and expend tremendous resources convincing people that there is no better way.

Posted by: soullite | Aug 7, 2007 11:25:16 AM

As near as I can tell, we simply do not have a truly bankable method of social or economic advancement in this society that is available to everyone.

Correct, and inarguable. This has been repeatedly demonstrated in studies, dissected in newspapers, dramaticized in popular culture, etc., etc., but policy-makers don't seem to get it. Perhaps spoon-feeding is the way to go.

Posted by: rb | Aug 7, 2007 11:35:40 AM

I think the issue of lagging the rich is less important than an individual's confidence in their own mobility.

I think they're both true; my own family's sort of a case study, because while we all assumed we'd be able to move up to some extent, the more painfully aware of extreme inequality one was, the harder it was to actually take the small, painful steps to stabilize our finances. But I absolutely agree that one has to see a path before heading into that forest.

Posted by: latts | Aug 7, 2007 11:47:01 AM

This argument is basically the old "blame the victim" dressed up in fancy economic clothes. Nothing is more pointless than a bunch of well-offs sitting around and deciding how poor people think.

Posted by: Kahuna | Aug 7, 2007 12:14:15 PM

Tyler Cowen commenting on the poor reminds me of that scene in Full Metal Jacket where the general looks at the soldier with a peace symbol on his helmet and asks "What is this? Some kind of a sick joke?"

It is particularly unattractive to see him imagining that poor people commit crimes so they can at least have some joyous times. The simple fact is that prosperous white people go to a 'club' and are immune from police intervention as they do exactly the same things poor people do.

And the whites don't even need to be that prosperous. Go back a few years to that town in Texas where 87 people were arrested for 'cocaine trafficking' by a perjurious police officer. What emerged was that white people in the town belonged to a 'club' where anything was legal, and outside the club, nothing was legal.

This example is the system made visible, just as a diamond is a visible carbon molecule. The basic principle runs through all the law enforcement in America.

Posted by: serial catowner | Aug 7, 2007 1:03:12 PM

This resonates with me because it describes a half brother of mine. He's basically homeless at this point (I think, I really don't speak with him to often). The more he spiraled downwards, the more often he made what we would term as "stupid" decisions; I image he found them to be perfectly reasonable - like violating a restraining order to see his kids... while he was drunk. Finally, when a small chance to change his life through some inherited money came along, he blew the opportunity on drugs, on odd ball land investment and bunch of special beach cruisers (my other half brother actually took advantage of the same opportunity, but at this point, he was also off the drugs and alcohol). Truly sad.

Posted by: DM | Aug 7, 2007 1:22:13 PM

Thinking about this a bit more, Cowen writes:

"It can make more sense to give money to people on the verge of leaving poverty, rather than people deeply mired in poverty."

The above applies with my aforementioned half brothers. The one that made the most of inheritance was on the verge of leaving poverty; he was able to stay clean and hold a job; and he was living with a long-time, equally and newly stabilized girlfriend. The other brother, the one that blew his inheritance, was truly mired in poverty; he was living out of his van with a girlfriend who wasn’t all there anymore.

Posted by: DM | Aug 7, 2007 1:34:24 PM

According to this theory, John Edwards' plan of facilitating the mobility of poor families to middle class neighborhoods is more attractive than Barack Obama's plan. The Edwards' plan is more is in-line with the this theory because poor families will be immediately rewarded for going through this process a tangible way. Barack Obama wants to improve impoverished neighborhoods which will take several generations. I suspect, most poor folks in such neighborhoods will not notice the path to upward mobility. But, at least Obama and Edwards have proposed specific plans unlike Hillary.

Posted by: jncam | Aug 7, 2007 2:02:30 PM

Yet the poor are not irrational or necessarily dysfunctional in terms of procedural rationality, but rather they are optimizing given constraints.

They're optimizing given their views of the constraints, some of which views aren't rational. Their views may be the natural result of their circumstances, but that doesn't make them rational.

Indeed, if I'm f**ked no matter what I do, then I'll do whatever helps get me through the day. The difference between slaves and the working poor is nominal; the system is the same.

Working hard won't get you anything but exploited in our economy, so you can't really work hard.

These would serve as good examples of what I'm talking about, were they said by a poor person.

I think the issue of lagging the rich is less important than an individual's confidence in their own mobility.

That makes sense to me.

That's true in some ways. But it doesn't follow that what the poor may believe about it isn't also a problem. (I have no idea what Ezra thinks about that.) Oppression generally induces paranoia, which only compounds the problems.

According to this theory, John Edwards' plan of facilitating the mobility of poor families to middle class neighborhoods is more attractive than Barack Obama's plan.

That's a good point, but there are other reasons Obama's plan makes more sense as an overall approach. You can't move eveyone who needs help out of poor neighborhoods, not even close, for various reasons in addition to the mere size probelms.

Catowner (and DM), the views you attribute to Cowen belong to Karelis.

Posted by: Sanpete | Aug 7, 2007 2:08:03 PM

As near as I can tell, we simply do not have a truly bankable method of social or economic advancement in this society that is available to everyone.

We also don't have effective means of cultivating the "rich attitude."

Can we assume that attitude toward mobility is a good thing? For the sake of argument, let's assume it is. Doing so let's us say that fostering that attitude would be a priority. However, without coupling it to actual opportunity, it'd be like creating false hope. A cultivated attitude can only last so long in the face of genuine experience.

This argument is basically the old "blame the victim" dressed up in fancy economic clothes. Nothing is more pointless than a bunch of well-offs sitting around and deciding how poor people think.

That kind of criticism does no good. Proverbial tossing of the baby out with the bathwater. Following that reasoning, the only acceptable study of poverty could be conducted by academics who were never prosperous.

I'll agree that there's a productive discourse to be had about the latent chauvinism and condescension that comes from turning people into a subject of study. But we need knowledge about poverty and the people who live in it. What are acceptable means for getting it? I'd rather risk the chauvinism and condescension than proceed to blindly create policy.

Posted by: Andrew | Aug 7, 2007 2:13:15 PM

closing tag

Posted by: Andrew | Aug 7, 2007 2:13:47 PM

Well, the link was to a post signed by Cowen. IMHO you own the words unless you put them in quotation marks and provide a citation.

The Clinton-Obama proposals make sense, especially if you work for the social agencies sent in to uplift entire neighborhoods at one time. From what I've seen in Seattle, this may work- if you literally go down to the bare ground and rebuild the entire neighborhood as a mixed-use mixed income mixture of privately owned and publicly subsidized housing and services. Which I am totally for doing, I should add.

Having occasionally been on the receiving end of a patchwork of volunteer staffed social services and inadequate government resources in seedy neighborhoods, I don't have a lot of enthusiasm for that approach.

Posted by: serial catowner | Aug 7, 2007 2:22:50 PM

dunno if this will work.

In Seattle a 60 year old neighborhood of entirely public housing was entirely removed, and replaced with a mix of public and private, large and small, residential and retail. If you think about it, this merges the Edwards approach, which mixes the poor with the not-poor, and the Clinton-Obama approach of (dare we italicize?) in situ development.

In other news, we desperately need to rebuild/renovate to reduce energy use, and decentralize energy production by schemes such as co-generation and solar. IOW, we have some good reasons to tear down and start over with a lot of older buildings.

This is also consonant with development on new transit lines (or, alternately, routing transit to where you want to develop).

The trillion we'll end up spending on Iraq would have done a lot of this work. Heck, the $60 billion we've spent on Star Wars would have made a good start.

Is we learning yet?

Posted by: serial catowner | Aug 7, 2007 2:34:29 PM

They're optimizing given their views of the constraints, some of which views aren't rational. Their views may be the natural result of their circumstances, but that doesn't make them rational.

Subjectivity is not necessarily irrational, and distant objectivity is not necessarily accurate.

Posted by: latts | Aug 7, 2007 3:23:55 PM

Yes, that's true, but do you disagree with what I said?

Posted by: Sanpete | Aug 7, 2007 3:31:30 PM

In your first sentence, you say that some of their views aren't rational, which may or may not be true in any given set of circumstances, so I'll disagree since it's a pointless generalization. Your second sentence is broad & abstract enough for me not to disagree.

Posted by: latts | Aug 7, 2007 3:41:26 PM

Even if what I said were a pointless generalization, that wouldn't make it false, and so I don't know what you mean when you say you disagree with it on that basis. It happens, though, that what I said isn't pointless at all, but was made in the context of Karelis' claim (as given by Cowen) that the poor are acting rationally by taking great risks, committing crimes, etc. It may be rational given their views, but unless their views are rational, the acts based on those views aren't necessarily rational. I can't tell that you disagree.

Posted by: Sanpete | Aug 7, 2007 4:03:26 PM

I disagree because it is a pointless generalization-- we can't say that a specific viewpoint is irrational because it's subjective, or even because it seems objectively irrational from our (still subjective, if somewhat less so from a broader societal standpoint) perspective. Quick cash is a rational, perfectly sensible good for many poor people, and the occasional risk of jail entailed in getting it may be acceptable, since even incarceration is in some cases more comfortable existence than chronic unemployment and/or homelessness. For people like me, with much more to lose, it seems completely irrational, but I can define rationality from a much more comfortable position than they can. Particularly once someone has become a felon, there's little rational incentive to avoid lawbreaking; hell, Victor Hugo wrote a fairly important novel about the difficulties of shifting one's perspective.

Posted by: latts | Aug 7, 2007 4:30:54 PM

we can't say that a specific viewpoint is irrational because it's subjective, or even because it seems objectively irrational from our (still subjective, if somewhat less so from a broader societal standpoint) perspective

And, again, I didn't say that, so disagreeing with that wouldn't mean disagreeing with what I said.

I can define rationality from a much more comfortable position than they can

Indeed, but that isn't disagreeing with what I said, which you still haven't really done. More comfortable or not, if your premises aren't rational it doesn't follow that your conclusions will be. And yes, that matters here and is far from pointless. False views about the world can be as much a prison as true obstacles, and both need to be addressed.

Posted by: Sanpete | Aug 7, 2007 4:49:44 PM

I'll believe that Democrats want to help the poor when Alec Baldwin helps me rent an apartment and pay for my education.

Posted by: Tim | Aug 7, 2007 9:51:17 PM

He already does, if you get any public aid or go to a public school. Not that your remark would make any sense.

Posted by: Sanpete | Aug 7, 2007 10:06:00 PM

I didn't say that, so disagreeing with that wouldn't mean disagreeing with what I said.

I’m not sure what else one would mean in carefully separating “views of the constraints” (your distinction) from “given constraints” (Cowen’s), but whatever.

if your premises aren't rational it doesn't follow that your conclusions will be

They certainly can be, depending on the parameters of a given question… it’s just a matter of who frames it.

But as usual, we’re speaking at cross purposes here, which does seem to be a conversational signature of yours.

Posted by: latts | Aug 7, 2007 11:10:38 PM

I’m not sure what else one would mean in carefully separating “views of the constraints” (your distinction) from “given constraints” (Cowen’s), but whatever.

Hmmm. I don't know why I couldn't mean just what I said, which merely recognizes the important difference between reality and what people think reality is. You know, the fundamental distinction at the base of the "reality-based community"?

But as usual, we’re speaking at cross purposes here, which does seem to be a conversational signature of yours.

Very funny. You attribute to me things I don't say and then complain about cross-purposes when I point it out. Well, yeah, I suppose, but whose fault is that?

Posted by: Sanpete | Aug 8, 2007 12:52:46 AM

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