Ethics@Work: Poverty trap

August 25, 2005 15:04

got some interesting reader reactions to last week's column about poverty in Israel. People want to know why it is so hard to fight poverty.

3 minute read.


Bus.Commentary_Tumb. (photo credit: AT)

got some interesting reader reactions to last week's column about poverty in Israel. People want to know why it is so hard to fight poverty. The problem is not just stupidity or bureaucracy. The problem is built in. An ideal poverty policy would guarantee every needy family a minimally adequate standard of living. But it wouldn't waste taxpayers' money by giving aid to individuals who are not needy. Try implementing the above policy and you will soon discover that for the poorest 20 percent or 30% of households it just doesn't pay to work. Most of these people have to work pretty hard to obtain barely above a minimally adequate standard of living, and a couple may find it hard to understand why they should work a combined total of 60 or 70 hours a week to earn only a few hundred shekels more than they would get on the dole. In short: if you give money to needy people, then you are paying people to be needy, and they will respond by becoming needy. This is called the "poverty trap." Some people would like to work but they just can't afford it. For many households work actually reduces their income. One obvious solution is to just hand out, say, NIS 2,000 to every family automatically. This makes it possible to not work, but at least if you are inclined to work it pays to do so. We actually do this in some cases, for example by giving almost-free education (an immensely expensive benefit) to all children, even rich ones. Child allowances have so far been distributed equally to all families. The problem with this idea is that it is prohibitively expensive. Here's a solution that sounds great: creating a safety net which is attractive only to the needy. Let's say we set up a modern-day version of the old-fashioned shtetl hekdesh, which provided a mattress and a warm meal to any visitor. Any person can go into such a government-sponsored Y and get shelter and nutritious food (including baby formula). Voila! No more poor people subject to exposure or malnutrition. Wealthy people would be allowed in too, but probably wouldn't find it an attractive option. The problem with this solution is that it displays a complete misunderstanding of the poverty problem of the 21st century. Today even the poorest families tend to spend a tiny fraction of their income on obtaining basic nutritional needs, and are generally able to obtain adequate shelter for affordable amounts (if they are willing to be mobile). According to the Central Bureau of Statistics, the average amount spent monthly by the poorest tenth of families on plain bread, milk, eggs, and potatoes is no more than they spend on trips abroad not to mention what they spend on pay television, which is found in most of their homes. Today's poverty problem consists mostly of families who have adequate ability to provide for basic creature necessities for the average person, yet remain far from middle-class standards or else have special needs such as health problems which require extra means. They lack the ability to acquire things which are commonplace today, but a generation or two ago were considered luxuries or were totally unavailable, including advanced medical treatments and modern electronic devices. Indeed, one possible explanation for widening income gaps is that as society gets richer, the actual difference in well-being between richest and poorest shrinks, even if the income gap remains the same. Let's suppose that commuting by bus costs five times as much as going by bicycle; that a used car is five times as much as bus; and a new luxury car five times as much as a used car. The difference in well-being is just not commensurate.

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