A long-standing economics puzzle is why people who are less well off engage in behaviors that cement them to that condition: dropping out of school, doing drugs, committing crimes, having children in their teen years. By the law of marginal utility, the benefits of going to college, for example, would be worth far more to someone in poverty than someone really well off.
Charles Karelis believes it's because our economic models of poverty are incorrect.
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.
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. Perhaps because economists, by and large, are well-off, he suggests, they've failed to see the shift at all.
If Karelis is right, antipoverty initiatives championed all along the ideological spectrum are unlikely to work - from work requirements, time-limited benefits, and marriage and drug counseling to overhauling inner-city education and replacing ghettos with commercially vibrant mixed-income neighborhoods. It also means, Karelis argues, that at one level economists and poverty experts will have to reconsider scarcity, one of the most basic ideas in economics.
Karelis theory has interesting implications for welfare programs. Rather than robbing the poor of their motivation to work, the primary concern of many welfare critics, welfare programs can shrink the list of problems faced by the poor, creating a greater incentive to work.
Much of Karelis' ideas are based on intuition rather than data, so his work has come under its share of criticism. His ideas are covered in depth in his book The Persistence of Poverty: Why the Economics of the Well-Off Can't Help the Poor.
Does the marginal utility curve slope the other way in poverty? The idea is an interesting one. I'm reminded of something I heard once which has always felt true: being rich doesn't necessarily make you happy, but being poor can make you unhappy. Karelis' idea deserves more empirical stress testing.
ADDENDUM: Professor Karelis wrote me a note after reading this post. I'll tack it on here at the bottom. I agree that the idea that those in painful situations might become more risk-loving rather than risk-averse feels very intuitive. I don't think you need to have lived in poverty to understand the impulse, either. Anyone who has taken a few bad beats at the poker or blackjack table and then started pressing has hoisted themselves off the optimal risk-reward curve in a fit of emotion.
Thanks for blogging my book on poverty. I couldn't figure out how to comment on your post so am trying this route. There has been empirical work supporting my theory. Here is one reference, from October 2010 journal Frontiers in Neuroscience. Experimental subjects were (as I predicted, without knowing about the lab work) risk loving when they started in pain and were confronted with the choice of remaining in their original state and taking a bet that would either alleviate their pain by a certain amount or make it worse by that amount. I have to say I consider that pretty obvious and unsurprising, and as I argued in my book it has only escaped economists because the accidents of intellectual history caused them to pose the question in a misleading way.