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…
READER COMMENTS
Mike
Aug 15 2019 at 10:27am
I agree that Karelis underestimates the other 6 explanations. But you give his story 0% credit? Why? I have a sister who makes bad decisions typical of the poor and it seems clear to me that part of the reason is that she has so much debt that half her wages will be garnished. This is consistent with Karelis story. Maybe you chalk this up to bad policy or something but it seems to me you are just being intellectually ungenerous by ignoring very plausible scenarios where his story can be a significant factor.
Daniel Hill
Aug 15 2019 at 9:15pm
But how did she get into the debt situation in the first place?
Mike
Aug 20 2019 at 10:32am
Maybe this question is what leads BC to attribute 0% to the Karelis story. But there is always an interplay between circumstances and behavior. There is no ‘first place’ just a self perpetuating cycle that has a few different stages/factors.
Ricardo
Aug 15 2019 at 11:54am
Let’s assume that poor parents often produce poor children (i.e., intergenerational poverty).
If 50% of poverty in developed economies is due to unusual preferences, is it your theory that these preferences are passed from parent to child? Or perhaps the preferences are cultural?
Hazel Meade
Aug 15 2019 at 1:11pm
My personal observation is that many poor people basically have normal preferences, but they are not persistent – they give up easily. I’ve seen people more or less flip flop around trying to decide what they want to do in their life, trying one thing and then another and then giving up and changing their mind six months or a year later. Same thing with relationships – new boyfriend/girlfriend every six months, leading to unplanned pregnancies and/or broken marriages.
You might fit this under “lack of willpower” or “fragmentation of self”, or there might be some unifying disorder underlying all of it.
I do think that the idea of increasing marginal utility among the very poor has some merit (or put another way, decreasing marginal utility as you go down in income), but I think most normal adults can figure that out – most of the very poor in America have at some point lived at a higher income level, so they know what the marginal utility of money is and they know that paying off their bills a little at a time will eventually get them to the higher marginal utility point.
The problem, is that people who are not persistent will just give up at the whole bills-paying thing too soon. They’ll put in a little effort and then when it isn’t immediately rewarded, or at the first setback, they will give up again. I suppose you could also classify this as short time horizons. They won’t persist in any endeavor long enough to see it pay off and/or they want immediate rewards at the neglect of long-term costs.
There’s something about self-control problems that ties all of these things together – having short time horizons, acting impulsively, not being persistent in working towards goals or in having persistent goals.
It’s also possible that impulsive people at higher income levels are able to get by in spite of their impulsiveness *because* they are above the reversal point where marginal utility starts to drop as income drops. So Karelis’s theory could be true but only for people that also have impulse-control problems. Or that the more impulsive, less persistent a person is, the more affected they will be by the incentives caused by the reversal of marginal utility. Some people who fall into a hole bounce back rapidly, and other people just get stuck in a rut. Some people have the persistence to fight their way back out of poverty, and other people don’t, but they might get along just fine in the working class or lower-middle class as long as they don’t fall below that reversal point.
Hazel Meade
Aug 15 2019 at 1:34pm
In response to your comment on #3, the problem is that (a) while many poor people do have self-control problems, they don’t know, or won’t acknowledge that they have self-control problems. They either aren’t that self-aware, or they live in communities with other people who have as bad or worse self-control problems, and hence don’t see them as abnormal behavior.
And (b), even if they signed such a contract, their self-control problems would prevent them from living up to it. In effect, taking on a large amount of credit card debt IS a contract which limits your future behavior, and they sign that contract and then default on it, anyway.
Steve S
Aug 15 2019 at 1:48pm
Wow, part 7/7, halfway through the post. You really buried the lede didn’t you Bryan? 🙂
OriginalSeeing
Aug 16 2019 at 10:46am
Amazon Review:
“The Persistence of Poverty is an awesome book. So logical. So concise. So direct. So insightful. So beautifully written. While I still don’t buy his big picture of poverty, I have been enriched by the experience.
…
0/100″
-Bryan Caplan
chris
Aug 15 2019 at 6:26pm
I honestly don’t have any research on hand to back this up, but I believe that poor people often make choices that you would call unusual preferences, because it just doesn’t really matter if they do. By this I mean that many people know that, regardless of what they do, they will be poor for their entire lives. They know, or believe based on those around them, that the deck is stacked against them. Knowing this, why not spend a few hundred on electronics, drink or take drugs, or hook up (unprotected sex is the one that I can’t really justify as children are expensive, but I think social and cultural influences involved)? The cost of a TV, drinking or most recreational drug use pales in comparison to the amount of money life-changing items cost, such as housing or education.
If you want the poor to stop having unusual preferences, we need to address the bias of individuals and institutions towards race, class and gender, provide a stable, clear pathway out of poverty, and increase the quality of education in poor neighborhoods. When someone knows from a young age that there is a path out of poverty that is attainable, there is education to support following that path, and that when they get to their middle class job interview they won’t be ignored because the other candidate “looks right” for the position, then they will be much more likely to make ‘rational’ long term choices.
We live in a world where unstable, low wage service jobs are consistently replacing secure, full time, relatively higher wage jobs for more and more people, and the time when you could just ‘work hard’ and make it is gone, though it’s worth noting that for many that time never existed (anyone that wasn’t white and male).
A Country Farmer
Aug 15 2019 at 10:50pm
I can’t wait for your book on this!
MarkW
Aug 16 2019 at 8:03am
With respect to Karelis’s six theories, I’m going with ‘none of the above’.
Other plausible stories, however, are that the poor put relatively more weight on pride, subcultural conformity, group identity, and the like.
But you don’t need to think that the poor put an unusual amount of weight on those factors. Just putting the typical amount of weight on them will tend to keep them in poverty. The vast majority of young people — poor and non-poor — choose life and career paths from a set of ‘thinkable’ options established by parents, relatives, older siblings, peers, etc. For kids growing up in communities of concentrated poverty, all the available options lead adult poverty. Escaping poverty would mean picking a foreign pattern — one that the kid had only heard about but never seen in person. It would commit them to ultimately leaving family and community behind (and setting themselves apart and ‘above’ their peers while preparing for their uncertain, audacious future). That’s a daunting prospect for most people, regardless of whether or not they’re poor.
Watch <i>October Sky</i> — Homer Hickam could so easily have ended up a a character in <i>Hillbilly Elegy</i> rather than a NASA engineer and writer. Or read about Norman Borlaug’s early life — he got off the farm and into the University of Minnesota by the thinnest of margins (he actually failed the entrance exam but at the time, the university had just created a two-year junior college where he could start his studies and do remedial work).
OneEyedMan
Aug 16 2019 at 10:36am
I’m surprised to read you put so little weight on self-control problems. First, automated savings programs like amortizing mortgages and 401k / 403B plans are massive lower and middle income savings plans in substantial part because the make it more costly for savers to stop saving or withdraw the saved funds. That other precommittment programs are not successful may simply be that those programs are unattractive.
Second, interventions that make people pay greater attention to their future selves also seem to substantially influence retirement savings. For example, the paper Increasing saving behavior through age-progressed renderings of the future self : ” In four studies, participants interacted with realistic computer renderings of their future selves using immersive virtual reality hardware and interactive decision aids. In all cases, those who interacted with their virtual future selves exhibited an increased tendency to accept later monetary rewards over immediate ones.”
Third, self-control is difficult. No matter how much you naturally want to save, exercise, eat, or sleep, you would probably struggle to adjust it by 10% out of your natural tendencies. This is true introspectively, but we see this out in the world, like in 12 step programs, which suggest addicts not use in moderation or sometimes even be around the products of their addiction.
John Alcorn
Aug 16 2019 at 10:49am
Many insights, ample food for thought, and a surprise (“Karelis model: 0%”)!
Let’s keep in mind the two-step structure of the question:
A) What causes persistence of poverty? Bryan Caplan and Charles Karelis agree that a specific set of nonbehaviors (not finishing school, etc.) are the main causes, but Bryan adds imprudent sexual behavior and childbearing. Here, behaviors are causes and persistent poverty is the effect.
My intuition is that the Karelis + Caplan catalogue of behaviors, which cause persistence of poverty, is incomplete. For example, divorce and nonperformance in alimony obligations is a substantial cause of persistence of poverty. But we get the general idea.
Let’s not forget that there are also substantial exogenous causes of persistence of poverty; for example, enslavement, war, malaria.
Behaviors of a large subset of the poor explain x% of persistence of poverty, and other causes explain (100-x)%.
B) Upstream, why do many poor people behave in ways that predictably will keep them poor? Here, psychology and constraints are causes, and behaviors are effects. And here is where Bryan and Karelis systematically disagree.
Karelis, the hedgehog, argues that situational marginal utility provides a general explanation of the nonbehaviors that cause persistence of poverty. Bryan, the fox, argues that standard theories all play a role, but that the Karelis model has zero bite.
Let’s not forget that there are also other psychological explanations, besides the standard theories, why many people behave in ways that predictably will keep themselves poor. Here are several examples from the book club:
* Mental illness (cf. Scott Alexander’s critique of Bryan Caplan)
• Social norms (cf. Robin Hanson, Charles Murray)
• Hedonic adaptation (cf. Bryan Caplan on happiness research)
• Self-sorting in open, meritocratic societies.
• Cognitive dissonance reduction. Because long-term strategic choice-bundling is daunting, many poor people unconsciously persuade themselves, mistakenly, that escape from poverty is improbable or impossible. Pessimism is then self-fulfilling.
(Note: Perhaps Bryan would classify some of this under apathy, one of the standard theories.)
My intuition is that, taken together, these psychological mechanisms are empirically important.
Therefore, if these (and unknown other) mechanisms, too, are in play, then the percentages that Bryan assigns to standard explanations, why many poor persons behave in ways that keep themselves poor, should not add up to 100%.
Let me tie off this comment with a simplistic illustration. If (A) the Karelis + Caplan catalogue of behaviors explains 60% of persistent poverty and (B) upstream, the standard theories explain 50% of the behavior, then the standard theories would explain 30% of persistent poverty. (0.6 times 0.5 = 0.3).
John Alcorn
Aug 16 2019 at 2:37pm
Correction: Bryan argues that all standard theories except apathy play a role (and that fragmentation of self plays only a tiny role).
Therefore, I shouldn’t have conjectured that Bryan might classify part of my catalogue of additional psychological mechanisms—mental illness, social norms, hedonic adaptation, self-sorting, cognitive dissonance reduction—as apathy. However, that Bryan classifies most of mental illness as extreme preferences (a standard theory). He might classify self-sorting in meritocracy partly as filtering by constraints in talent, health, and so on (another standard theory).
However that may be, social norms, hedonic adaptation, and cognitive dissonance reduction don’t fit any standard theory, but (I think) do have bite.
John Alcorn
Aug 16 2019 at 6:57pm
Or maybe Bryan would file the cognitive dissonance reduction mechanism under laziness? (Motivated belief-formation)
SaveyourSelf
Aug 16 2019 at 1:36pm
Thank you, Bryan Caplan. This is a fantastic post–relevant and thoughtful, clear and practical. At first blush, I can’t find a single thing to disagree over. I was especially impressed with your inclusion of “government policies that are not intended to help the poor” under restricted opportunities.
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