I don’t know how I missed this paper by Bryan Caplan and Scott Beaulier. Basically Bryan an his co-author give a behavioral economics defense of the “culture of poverty” argument. They argue that if we take the conclusions of behavioral economics seriously then we have to admit the strong possibility that aid to the poor can make the poor worse off.
I recommend that as many people read this and post or comment on their thoughts. Its antithetical to my core worldview, one the authors correctly dub as neoclassical. I haven’t decided yet whether or in what way to revise my thinking in light of it.
It may not be as big of a deal to others but because I take behavioral claims seriously and my beliefs rested so heavily on the neoclassical framework, it’s a big deal to me.
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Tuesday ~ February 1st, 2011 at 7:15 pm
The Ambrosini Critique » Blog Archive » Does the Welfare State screw the poor?
[...] really thought about the structure of these unintended consequences. So I second Karl Smith’s recommendation to read Beaulier and Caplan’s paper on the [...]
Tuesday ~ February 1st, 2011 at 7:38 pm
Hyena
Skimming it I saw no robust connection between his arguments and well-being. Rather, it’s mostly moralizing: the poor are argued to be “worse off” because they make additional bad choices. The problem being is that there would be an equilibrium reached between additional bad choices and additional transfers. At best he’s probably providing an argument for why welfare may be less effective than intended.
Thursday ~ February 3rd, 2011 at 1:05 am
Joe Sendle
Being provocative is OK, but there are a lot of problems with this paper that have to be addressed. (Here are a few. There are more.)
1. The actual, historical record of increases in what the paper calls “pathologies” doesn’t fit with the paper’s explanations. For example, out-of-wedlock births have increased substantially *at all income levels* and for all races over the past hundred years. But welfare/government doesn’t explain that: medium and high-income people don’t get welfare, but the percentage increase in their out-of-wedlock birth rate is high. (The poor have more such births, but the increase has been high all over, and studies have shown welfare benefits can’t be the main cause. As just one example, http://www.brookings.edu/papers/1996/08childrenfamilies_akerlof.aspx)
2. The actual, historical record of poverty runs counter to the arguments the authors make. For example, the states with the highest poverty rates in the early 2000′s were Mississippi and Arkansas, conservative states without political support for generous social benefits. Meanwhile, among the states with the lowest poverty rates were Connecticut, Vermont, Delaware, and New Jersey, much less conservative states with much higher political support for social benefits. (There were some states that deviated from the pattern, but overall the pattern is strong.)
3. There is a lot of reliance on IQ studies that have drawn heavy fire for their shortcomings. For example, average IQ US has risen significantly over the last hundred years, yet the things IQ is supposed to explain, such as poverty, haven’t followed the same trend. And did people get smarter during Clinton’s presidency, when poverty declined, and dumber during the first six years of Bush’s, when it increased? Then there are the studies that show that in most cases, the ability to be liked is a bigger influence on success than IQ. (And higher-IQ people aren’t necessarily better at being liked. If intelligence explains so much, why don’t high-IQ individuals see its importance and do better at it?)
4. There is hard evidence that structuring government payments to reward certain behavior (e.g., staying in school) works. And that it works better than not having assistance at all, which the authors suggest could be the right idea. The New York Times had a piece on this idea and its use in developing nations, where there no assistance really is an option, and some use in the US.
5. Behavioral economics makes a very strong case for a lot of government regulation and requirements, such as the FDA, seat belt laws, universal health care, etc. The authors don’t talk about these parts of the “welfare state” at all except for tobacco taxes. The simplest explanation is that they ignore these aspects of government because they are ideologically opposed to the conclusions behavioral economics reaches.
Tuesday ~ February 1st, 2011 at 8:22 pm
govt_mule
Read through it pretty quickly. Seemed like the same old conservative trashing of the poor with a little “behavioral” window dressing.
According to Caplan, poor people make bad choices to a greater extent than the norm because they are unintelligent, lazy, lack self-control, don’t consider consequences, have too many options and don’t experience prompt negative consequences for their actions.
One can say the same thing about a lot of rich, intelligent people, and their bad choices have a far greater impact on our lives. Unwed mothers didn’t pump tons of mercury into the air or PCBs into the water, didn’t loot the S&L industry, didn’t start wars in Iraq and Afghanistan, didn’t drop the value of my 401k by 40%, yada, yada.
If Kaplan took a realistic look at the options available to poor people, I don’t think he’d find their choices any less rational than those of wealthier people.
Tuesday ~ February 1st, 2011 at 8:50 pm
jazzbumpa
I started reading, and this pulled me up short (emphasis added):
If, on the other hand, the poor decide to take the government’s money and remain idle, it must be because — all things considered — it maximizes their expected lifetime utility. In other words, if you were to remind welfare recipients that they are hurting their future job prospects, they could curtly respond: “I am well-aware of that, but my welfare checks more than compensate for my loss of future income.”
This is absurd on its face. Can anyone seriously believe that a person living at the subsistence level really goes through a decision tree process based on long vs short term utility maximization?
I call bullshit! It’s what you get when you view the word, not only as an abstraction, but through an extreme ideological prism.
The poor are much more likely to be thinking about their lack of a winter coat, or the next meal, and/or whom or what what they might have to share it with. What part of Maslow’s pyramid do you think they occupy?
From what I’ve seen of Caplan, he routinely writes ideologically motivated nonsense like this.
I strongly advise you not to revise your thinking based on anything you get from him.
Ever.
Cheers!
JzB
Wednesday ~ February 2nd, 2011 at 3:06 am
noneconomist
Agreed. What idiocy – clearly none of these authors and their ilk ever spent time with poor people to see what their lives were really like. Empty moralizing speculation masquerading as empirical “research.” The smugness and condescension is apparent, but those who despise the poor do not understand that even when so-called handouts have been begrudgingly given, it has been most inadequate to address the very real and worsening problems in American society. The treatment of the poor here is barbaric and punitive.
Wednesday ~ February 2nd, 2011 at 3:19 pm
Ryan P
JzB, do you realize that the part you quote isn’t in fact what Caplan is arguing, but the opposite of what he’s arguing? That the whole point of the paper is to say that the neoclassical argument in quotes might be wrong? If you’re going to criticize someone for being a kneejerk ideologue who doesn’t bother to understand what’s going on before taking a stand, at least make sure you’re stating what it is that you disagree with properly.
Tuesday ~ February 1st, 2011 at 8:56 pm
MRP
The emphasis on greater deviation from neoclassical assumptions among the poor seemed like a distraction; while it may be true*, the conclusions are not dependent upon it. The paper would have been shorter and come across as less condescending assuming income-independent deviation from neoclassical assumptions.
*It seems less plausible that deviations from neoclassical assumptions are uniform across the population than that there is a distribution; given a distribution, it seems intuitive that greater deviation would place downward pressure on income.
Tuesday ~ February 1st, 2011 at 9:13 pm
Hal
Quickly glanced at the paper, but I didn’t see anything that validated the correlation they are addressing. Correlation does not equal causation, after all, and it seems – again, just a quick reading – that they are assuming that the poor are acting perverse because of the welfare state.
I can have an infection for any number of reasons. Rubbing it with dirt will likely aggravate the problem. However, the problem isn’t rubbing it with dirt, it’s the issue that is causing the original infection.
Liberal policy towards the poor may or may not aggravate the problem. I’m fairly sure that the liberal policy isn’t necessarily treating the root cause, rather it’s treating the symptoms. Fair enough. And perhaps by treating the symptoms one makes it more likely that those with the problems don’t treat their root issues.
But I’m pretty sure no one knows what the root issues are, and if they do, what the heck to do about it.
One doesn’t give up on AIDS patients just because we don’t know how to cure AIDS. Likewise with poverty and the poor. May well be we’re making it marginally worse for society by trying to alleviate their suffering. But until we actually can fix the root problem, I’m more than willing to err on the side of mercy.
Tuesday ~ February 1st, 2011 at 10:29 pm
Tweets that mention Behavioral Economics and the Welfare State « Modeled Behavior -- Topsy.com
[...] This post was mentioned on Twitter by Samuel J. Scott, Jeff. Jeff said: Behavioral Economics and the Welfare State « Modeled Behavior http://bit.ly/dXVb39 [...]
Wednesday ~ February 2nd, 2011 at 6:49 am
RJB
I read the first half of the paper. This seems to be standard behavioral economics fare, emphasizing well-known biases and applying them to a very narrow sphere (the behavior of the poor) to argue against social insurance and affirmative action. I wonder if the authors will have the courage to stick with their newly-adopted world view, and argue (as so many others have) such biases justify many regulations that would be welfare-reducing in neoclassical models. Since evidence for most of these biases is found among wealthy, well-educated white college students, it hardly seems appropriate to limit the implications of this new enlightenment to impoverished black dropouts.
I look forward to reading the “new Bryan Caplan”‘s arguments supporting a wide variety of regulations currently under the jurisdiction of the FDA, SEC, BATF, etc. Is that the focus of the second half of the paper?
Tuesday ~ February 8th, 2011 at 5:19 pm
Jeremy H.
Or perhaps Loss Aversion means that the FDA may be inefficient.
Wednesday ~ February 2nd, 2011 at 9:46 am
Verbatim
I read the first half as well and was disappointed. There was no model (some words strung together do not a model make) so it does not properly qualify as even a theory paper. There was no actual analysis of any data (not even experimental data).
In terms of implications, it might help to talk about mechanism design – how should altrustic people (or governments since poverty alleviation could be considered a public good) optimally design transfers? The authors’ solution is to give up completely which is clearly sub-optimal.
Also, I agree with RJB above and MRP.
As a junior economist, I was wondering if you knew where such pieces could be published? I could churn out papers like this in a week and if these are publishable I could make great strides in my career without having to do any of the long hard work that goes into constructing a formal model, gathering data, conducting a robust analysis, etc. A paper such as this is hardly more work than expanded introduction, motivation, and literature sections.
Wednesday ~ February 2nd, 2011 at 11:12 am
Karl Smith
The paper was published in Kyklos.
http://onlinelibrary.wiley.com/doi/10.1111/j.1467-6435.2007.00382.x/abstract
Certainly you aren’t getting anything like this in the QJE.
An important question is whether or not that’s a good thing. If you say something very precise about an unimportant question you can make it into the JPE. If you have some interesting musing on an important question you are relegated to 4th Tier.
Is that a good thing?
Wednesday ~ February 2nd, 2011 at 1:58 pm
jazzbumpa
Karl -
While that is an good and important question in its own right, it side-steps the major fact that this paper is drivel.
JzB
Wednesday ~ February 2nd, 2011 at 12:54 pm
What Kind of Papers Should We Celebrate: Math Free Essays and the Baby-Sitting Economy « Modeled Behavior
[...] February 2nd, 2011 in Uncategorized | by Karl Smith I posted a link to Bryan Caplan’s paper on Behavioral Economics and the Welfare State. Many of the comments I got from economists were [...]
Wednesday ~ February 2nd, 2011 at 2:11 pm
Robert1952
Interesting that what is obvious to me may be a subject of debate. The poor clearly are victims of programs intended to help them. Certainly there would be no inner city pockets of poverty if welfare didn’t enable poor people to live there. Otherwise they would have to emigrate like their ancestors to places of greater opportunity.
What those who like to experiment with programs that affect others’ lives do not understand is how truly challenging is life for others, particularly for those who have been unsuccessful in school, work,…life. Only the individual has the ability to lift his- or herself from lethargy. Assistance is usually demotivating. Recipients rationalize but to little avail. Precious pride is lost at great cost. Failure is demotivating to those who have not tasted success. Read “The Millionaire Next Door” to see that parental handouts lead the children of the rich to fail. No one is immune from the almost debilitating effect when rescued from one’s bad choices! I have seen it in my children, in myself, and in others I have known. I married a girl who grew up hungry and poor. My parents grew up painfully poor, but they never had assistance. They were proud and motivated! My eighth-grade educated father was a logger in the Montana woods. He suffered broken bones, and persevered through long days in the chill of below zero temperatures. He worked hard! He made it easy for me. Yet, despite my engineering degree I have yet to achieve at age 58 what I saw him accomplish at 55.
Wednesday ~ February 2nd, 2011 at 4:55 pm
Vikingdude
Robert1952–
It seems you’re considering only two options, assistance or no assistance. The paper makes the same mistake. What if the assistance were not straight cash, but better structured to account for the biases described? Carrots and sticks designed to be effective within poor individuals’ capacity to weigh them accurately? Maybe subsidize workplaces instead to bring people into the working world. Yeah, it’s complicated, but do we want to solve the problem or not?
It also sounds like you assume that everyone is somehow naturally imbued with sound values, pride and motivation, like your family and your wife’s. Not true, unfortunately. Many poor young people grow up without EVER spending time with ANYONE motivated and proud. Dads are gone, moms are on welfare. (Once in a rare while, someone can independently rise out of the cycle, but that is the rare exception, not the rule.) Telling people to buck up and behave as you would, despite never having experienced your value system, makes no sense.
I feel your frustration; my parents worked very hard for what they achieved too, and like you I am the beneficiary of their worldview. But we can’t simply yell at people to compete in a road race when they’ve never seen a bike. We need to provide training wheels. Annoying but necessary.
Wednesday ~ February 2nd, 2011 at 8:05 pm
govt_mule
“Certainly there would be no inner city pockets of poverty if welfare didn’t enable poor people to live there. Otherwise they would have to emigrate like their ancestors to places of greater opportunity.”
I haven’t heard that idea before. Why would they have to emigrate? Don’t the poor in third world countries without welfare simply stay in the cities in huge shanty towns and beg/scavenge for subsistence?
Thursday ~ June 23rd, 2011 at 6:10 pm
Viney
Supeblry illuminating data here, thanks!
Wednesday ~ February 2nd, 2011 at 6:54 pm
Verbatim
Fair enough – we should celebrate all intellectual contributions regardless of the level rigor.
Moving on to the specific paper, here’s one problem: behavioral pathologies are characterized by ‘over-eating, drinking, smoking, drug-abuse’ etc. For such pathologies, in hindisght, victims can and do blame enablers suggesting the time inconsistency of their preferences (see Ulysses Unbound – Jon Elster). Do welfare recipients blame the welfare system in hindsight? This is easily testable (ask those no longer on welfare whether the welfare was harmful).
They list a number of problems (such as addiction) that are more prevalent among the poor – but there are numerous other equally good backstories to explain all these correlations – to suggest just one alternative (out of dozens, literally): poverty makes people miserable – a short term boost in serotonin or some drug to ‘numb’ the pain may in fact be optimal.
That’s what I find most troubling about the paper – the authors choose a certain backstory (and I’m not sure its entirely consistent – but by evoking behavioral assumptions, the inconsistencies get clouded) while there are numerous other backstories (some of which have been tested empirically).
Why should we believe in this particular backstory? A testable model would have helped their case.
And suppose we do go along with their backstory (for the sake of argument), the behavioral solution would be to “Nudge” (see Thaler and Sunstein) with appropriate incentives rather than give up on poverty. The issue at hand from a behavioral framework would be mechanism design – not an abandonment of the poor – especially if the authors believe that their results hold for altruistic individuals considering charitable donations.
Wednesday ~ February 2nd, 2011 at 11:28 pm
Hyena
The idea that “bad behavior” among poor people is actually a rational response to the suffering of poverty is the point of Karelis’s book, “The Persistence of Poverty”. Of course, the natural conclusion drawn from it is that we should give money to the poor.
Thursday ~ February 3rd, 2011 at 8:21 am
Does Behavioral Economics Undermine the Welfare State? « Rortybomb
[...] Smith is concerned after reading this paper by Bryan Caplan and Scott Beaulier – Behavioral Economics and [...]
Thursday ~ February 3rd, 2011 at 4:25 pm
ANetliner
The Caplan/Beaulier article is offensive in that it stigmatizes the poor as being inferior in judgment and intellect to the non-poor.
I don’t dispute that cognitive biases exist, but I do dispute that the poor are somewhat more subject to them than the non-poor.
One could criticize legacy and development-driven admissions to colleges and universities, at least for students whose academic credentials are subpar. But apparently judgmental bias is OK if it is practiced by the wealthy or the well-connected.
Thursday ~ February 3rd, 2011 at 5:53 pm
Hal
It’s also well to remember that the effects of poor nutrition and diet within the first five years of a child’s life have an major impact on IQ/judgement/self control, etc, etc. The effects are so large as to dwarf any statistical data one such as Charles Murray has endeavored to dig up on genetic variations.
And countering these effects are almost trivial beyond belief. You largely have to just be sure to give these kids – and that means pre-natal care, to be sure – good food and such.
But, as has been repeatedly demonstrated by the right wing of politics, this is pretty much the one thing they simply can’t seem to do without at the very least a titanic wailing and gnashing of teeth. Simply providing adequate – not by any means what anyone in their right mind would even count as “normal” – nutrition for the children of the poor seems to be akin to giving Cadillacs to the mythical welfare queens.
Heck, even on this blog, we have the periodic updates on paternalism wrt even the most awkward and minimal attempts at providing some lower bound of nutrition for children. And as many have pointed out, there is some irony in complaining about paternalistic behavior wrt children.
The end result is that if you’re born poor – something of which you literally have no choice in the matter – you’re not just at a severe disadvantage given the social environment we as a society have graciously bequeathed you, you now have to endure a punishing diet which will rob you of essential nutrition just when you need it the very most.
And this isn’t some random #fail of mother nature, the “unfair” universe blindly striking people with no recourse from our poor human beings. This is something we can easily and trivially correct. And any attempt at correcting this incredible disadvantage is met with a force of ten thousand suns by anyone to the right of Jimmy Carter.
Thus, this paper really is just another in a long series of attempts to prove that Capitalism really is a moral justification for Calvinism. If you’re poor, the Universe (or God) hates you because you’re just a sniveling, worthless shit who – if they had even an ounce of gumption – would have pulled themselves up by their bootstraps long ago.
Oh, and helping these poor saps just makes it worse. So the real problem becomes how the hell do we effectively ignore these people so we can get back to enjoying our life and not have them hovering around all the time harshing our buzz as we’re reading Reason at the coffee shop.
Thursday ~ February 3rd, 2011 at 4:32 pm
Thinking About Welfare and Poverty |
[...] some really fascinating, innovative ideas and research. One paper that really made me think was Behavioural Economics and Perverse Effects of the Welfare State. What this essay really drove home, that I hadn’t adequately reflected on previously, is the [...]
Saturday ~ February 5th, 2011 at 4:27 pm
The Finance Cooler | Blog | Does Behavioral Economics Undermine the Welfare State?
[...] Smith is concerned after reading this paper by Bryan Caplan and Scott Beaulier – Behavioral Economics and [...]
Sunday ~ February 6th, 2011 at 1:09 pm
Does Behavioral Economics Undermine the Welfare State? « The Baseline Scenario
[...] the title of a post by Mike Konczal, who answers it in the negative. The question comes from Karl Smith and is based on a paper by Bryan Caplan and Scott Beaulier. The paper argues that welfare programs [...]
Tuesday ~ February 8th, 2011 at 4:18 am
Does Behavioral Economics Undermine the Welfare State? | Le Blog Eco de Philippe Jean-Pierre
[...] the title of a post by Mike Konczal, who answers it in the negative. The question comes from Karl Smith and is based on a paper by Bryan Caplan and Scott Beaulier. The paper argues that welfare programs [...]
Thursday ~ February 10th, 2011 at 4:38 am
Institutionalized Nastiness | Just Above Sunset
[...] And Yglesias cites Bryan Caplan giving this argument its most up to date form: [...]