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Poverty of Ideas

Is there anything new to be said about the poor?

Nov 5, 2007, Vol. 13, No. 08 • By JOEL SCHWARTZ
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The Persistence of Poverty

Why the Economics of the Well-off Can't Help the Poor

by Charles Karelis

Yale, 208 pp., $30

Charles Karelis is not a philosopher-king, but he can fairly be described as a philosopher-public servant.

Formerly the longtime director of the Fund for the Improvement of Postsecondary Education (in the Department of Education), he has also been president of Colgate. He is currently research professor of philosophy at George Washington, and in this short but ambitious book, Karelis attempts the difficult task of saying something new about poverty--a subject that has been exhaustively studied for decades. Karelis's effort to stake out an original position is laudable but doesn't finally succeed.

He begins by making what is usually a conservative argument: Poverty results from the self-destructive behavior of the poor. He mentions five behaviors in particular. The poor are poor because they "are not working much for pay," are "not getting much education," are "not saving for a rainy day," are "abusing alcohol," and are "taking risks with the law."

Karelis's list of the problematic behaviors of the poor is useful, although in two respects it is idiosyncratic. His contention that drinking to excess is an important cause of poverty is refreshingly retro; that claim was commonplace in the 19th century but is practically never voiced today. More surprising is a cause that Karelis omits: The propensity of the poor to produce illegitimate children. Karelis acknowledges that "having children early and out of wedlock is ... doubtless a big factor in poverty in the United States today," but does not consider it "as global or as perennial as the other factors on our list."

What, then, causes the self-destructive behaviors of the poor? Karelis offers six explanations, which fall into two categories. Three posit the irrationality and "dysfunction" of the poor, who are thought to be characterized by "apathy ... fragmentation of the self, which leads to short time horizons, and weakness of the will." The other three understand the behavior of the poor as a rational response to their situation and deny the dysfunctionality of the poor. Instead, their behavior is explained as a response to "opportunities [that] are unduly limited" or "perverse incentives created by public policy," or as a result of "atypical preferences."

But Karelis goes on to reject all of these arguments. The poor are not, for the most part, dysfunctional. Nor is it the case that they lack opportunity, that their preferences differ significantly from those of the nonpoor, or that public policy encourages their counterproductive behavior. Karelis argues instead that, given their economic situation, "poverty-linked conduct is efficient," and he elaborates on this claim: "Poor people engage disproportionately in the poverty-prolonging and poverty-worsening behaviors because they are poor--and rational. For this conduct is exactly the conduct that makes sense for them."

To make this case, Karelis takes aim at a fundamental postulate of economics: the law of diminishing marginal utility. That law posits that the first dollar of income has the most utility, the second dollar slightly less, the third still less, and so on. Its core idea is that "resources mean most to those who have least. On this basis it is natural to conclude that poor people stand to benefit especially from working for pay."

Karelis contends, though, that the marginalist view is inapplicable to the situation of the poor--and that it underlies all six of the theories of poverty that he finds wanting: "Conventional theories of poverty are divided into those that assert that the conduct in question really contravenes marginalist prescriptions [i.e., the dysfunction theories] and those that contend the contravening is a mirage--but neither side questions the validity of marginalism itself."

Karelis claims that "marginalism is mistaken," but in his view it is mistaken only in part. For those who are well off, he agrees, the value of each additional dollar does, indeed, diminish. That rule does not, however, apply to the poor: "Marginalist economics was an economics of more-than-enough that mistook itself for a general theory, applicable to both surplus and deficit."

Of course, the crucial question is why marginalism does not apply to the poor. Why isn't it worth the while of poor people to earn that first (or next) dollar? To answer that question, Karelis, adopting a familiar philosophical practice, argues by analogy. A poor person is like someone who has suffered multiple bee stings. For someone stung once, salve to relieve the sting would be very valuable. But for someone stung seven times, salve that would relieve only one sting would not be particularly valuable because the pain from the other six stings would remain. He explains: