Review of "Persistence of Poverty"

An excellent book has recently come out, which should be read by anyone with an interest in poverty, its causes, and its eradication. Especially, anyone advocating elimination of poverty through a demogrant, a grant to everyone in society sufficient to meet all basic needs.

It is titled "The Persistence of Poverty; why the economics of the well off cannot help the poor" and it was written in 2007 by Charles Karelis. ( ISBN 978-0-300-12090-7) It is such a revolution in economic thinking that it has been barely noticed in the establishment media and especially in academic circles. It is a good bet to eventually become one of the landmarks in the history of economic thought.

This book turns economics right side up. It explains the behaviour of people in poverty, which conventional economists describe as 'irrational' or 'immoral'. There has never been any mystery as to why poverty exists in "the midst of plenty"; somebody's 'plenty' is the cause of somebody else's poverty in a finite world. But this book also explains why poverty itself causes poverty.

It does so in the terms of the theory of utilitarianism which developed in the early nineteenth century, then gradually became the basis of economic theory in the twentieth. It is all about "the greatest good to the greatest number" and 'marginal utility'.

For the utilitarians, who are most economists these days, the object is to get the most utility, the most satisfaction, for the most people. The theory of marginal utility is that each new unit of something increases the pleasure of the person who has it. It creates an incentive to work to get more of it.

But there is a diminishing return for whoever owns the things. Each one gives less pleasure than the last one, until at some point the possessor would not spend any effort to get one more of the things. This point is where the 'margin' is in marginal utility.

So, to the typical well-to-do economist, what Karelis says is counter intuitive. They do not understand why impoverished people make no effort to work harder to improve their situations.

But this is understood by anyone who has lived in poverty or understood how people in poverty live. To these people, when they can become aware of Karelis' work, it will be a bolt of understanding; articulating what they knew subconsciously all along. For them, 'utility' works the opposite as for well-to-do people.

For example, people without enough money to live on, when they get some money, will often spend it enjoying themselves for a few days, even though this leaves them broke the rest of the month. Karelis compares this with the ancient Lydians. When there was a famine in their country, they began to eat every other day. That way, they were only miserable half the time, instead of all the time. Modern welfare recipients can be miserable all the time or they can prefer to be contented at least some of the time.

To further show this, Karelis uses the analogy of bee stings. If you had one bee sting, you would put a drop of ointment, a 'reliever', on it. But suppose you had seven bee stings, seven 'disutilities', seven separate things causing you pain, and only one or two drops of ointment. You likely would not even bother applying them, because even with these relievers, you would still be hurting as badly.

Other analogies of Karelis' are; that of giving a barefoot person one shoe, or giving a car on blocks one wheel. The barefoot person would likely throw the shoe back at the giver. The car cannot begin to function as a car until all its 'disutilities' are 'relieved' and it has all its four wheels.

Similarly, a person in poverty cannot be out of poverty until all the disutilities that prevent him from being a fully functioning person in society are relieved. Getting enough to merely stay alive does not relieve her pain at being in poverty. It merely prevents her from dying. It may allow her some temporary 'pleasers'.

The reason why impoverished people stop trying to get out of poverty is the same reason why the dog in the behaviourist's cage stops trying to avoid the shock; because it learns that no matter what it does, it cannot escape the cage or the shock. People who are poor for a long time finally conclude they will never get out of it, and stop trying.

And here is the thing which confounds economists; working to get an extra reliever is not enough to relieve poverty, the same way that getting two drops of ointment instead of one still does not help against seven bee stings. So they might as well spend what money they have on pleasers.

So, there is no work incentive for people until they are out of poverty, and can begin to have some satisfaction with life. Only then is there an incentive to work in order to get 'pleasers'. So, poverty itself creates poverty.

To explain this in utilitarian terms; there is a line, call it a poverty line if you want. This line is the point at which people are free of disutilities which keep them in misery. Below this line there is no real incentive to work to get anything. Above this line, there is incentive to work to get more pleasers.

But it would do the most people the most good, make the greatest utility, if enough of these pleasers were converted to relievers so as to get everybody above this poverty line. Then everybody would at least be satisfied with life. Perhaps we should call it the 'satisfaction line'.

Now, think about these different types of things; 'goods'. Karelis divides goods into pleasers, relievers, and things which can be pleasers or relievers. People only need enough relievers to effectively relieve their poverty, but they must have them because only when they are no longer poor can they be fully functioning people in a state of satisfaction. Nobody needs pleasers, they will not be in misery if they do not have them, though people will pursue them until they become jaded by them.

So, relievers are much more important than pleasers. If you have bee stings it is more important at the time to get enough lotion than to get something pleasing. It is much more important for a person who is in poverty to have another $10 000 so she can get off the street and have a good apartment, than it is for someone with $50 000 to have to give up $10 000 and eat out less.

Obviously, there are implications to looking at net utility in this way which can be discussed endlessly. One can argue about the difference between the poverty/satisfaction line among urban North Americans and among African Pygmies. One can ponder what effect mass marketing and status competition have on defining disutility.

But Karelis has put economics right side up. Utilitarian economics now has relevance to that great majority of the world's people who are in need of some relievers. He makes a very strong arguement for a universal demogrant which makes sure everybody has the relievers to eliminate disutilities in their lives and bring them up to the level of satisfaction with life.