Matthew Yglesias points to one of the most fascinating articles I’ve read recently. Charles Karelis, a George Washington Univeristy professor has a new explanation for the persistence of povery. Here’s the nut:
…traditional economics just doesn’t apply to the poor. When we’re poor, Karelis argues, our economic worldview is shaped by deprivation, and we see the world around us not in terms of goods to be consumed but as problems to be alleviated. This is where the bee stings come in: A person with one bee sting is highly motivated to get it treated. But a person with multiple bee stings does not have much incentive to get one sting treated, because the others will still throb. The more of a painful or undesirable thing one has (i.e. the poorer one is) the less likely one is to do anything about any one problem. Poverty is less a matter of having few goods than having lots of problems.
The geeky upshot here is that the law of diminishing marginal utilitiy may not actually be a “law” after all. (Marginal utility theory says that the value of money declines as you have more of it. In other words, $20 means a lot more to me than it means to Bill Gates, and it means even more to someone in poverty.) But if diminishing marginal utility is right, then poor people should have strongest incentives to work, stay in school, and amass wealth — because each dollar aquired is “worth” more when you’re poor than when you’re comfortable. But, in fact, poor people are stastically less likely to do these things than middle class or wealthy folks. But why?
To understand why, he argues, we need only think about how we all deal with certain familiar situations. If, for example, our car has several dents on it, and then we get one more, we’re far less likely to get that one fixed than if the car was pristine before. If we have a sink full of dishes, the prospect of washing a few of them is much more daunting than if there are only a few in the sink to begin with.
That sounds at least partially right to me. (Though obviously, most poor people also face very serious practical hurdles to aquiring money, even when highly motivated to do so.)
Poverty and wealth, by this logic, don’t just fall along a continuum the way hot and cold or short and tall do. They are instead fundamentally different experiences, each working on the human psyche in its own way. At some point between the two, people stop thinking in terms of goods and start thinking in terms of problems, and that shift has enormous consequences.
Karelis has some ideas about what his theory means for solving poverty, and for why it’s proven to be fairly intractable in the conext of the U.S. policy. I’m not sure I’m in complete agreement, but the article is certainly worth a read.