Poverty: structural or individual?

Is poverty structural or due to individuals' failings? Matt Bruenig and Noah Smith are debating this. I'm inclined to agree with both of them.

I agree with Noah that the two are not mutually exclusive. A quick thought experiment shows this. Imagine a dictator were to set the distribution of incomes so that a few were very rich, many did OK but that a big minority were poor. And he then allocated positions in this distribution on the basis of various psychometric tests for intelligence, laziness and character. Would poverty in this society be due to structures or individuals?

Obviously, to structure - because the dictator has set the structure of incomes so that some are poor.

Obviously also to individuals - because there is a perfect correlation between poverty and low intelligence or other character failings.

The distinction, then, isn't robust.

Another thought experiment might help us distinguish the two. What would happen if everyone were to become intelligent, educated and hard-working?

The "poverty is individual" brigade would say that some form of Say's law would lead to the creation of sufficient good, well-paid jobs to eliminate poverty. The "poverty is structural" band would say that this won't happen, because inequality, deskilling and unemployment are inherent structural features of capitalism, which would condemn some to (relative) poverty even if we were all smart and employable.

What's the empirical evidence here? Immediately, we run into a problem. The research on the links between human capital and aggregate growth, whilst large, is not conclusive (pdf). On the one hand, Erik Hanushek among others thinks there might be big macro-level payoffs to higher cognitive skills. But on the other, there's lots of scepticism about the link between education and growth. Bryan Caplan's reading of the evidence is that the response is "low" - and Middendorf and Krueger and Lindhal agree (pdf). This is consistent to the private payoffs to education being due to signaling - which implies that it is one's relative, not absolute, level of education which determines one's income. If so, better education for all won't raise incomes much.

All this said, two bits of evidence - on top of my priors! - makes me side with Matt in believing that mass upskilling won't eliminate relative poverty.

1. Graduate over-education is significant in most countries. This suggests that Say's law doesn't work; good jobs haven't increased fully in response to a supply of educated workers.

2. There's no correlation between inequality in human capital and in incomes, either across countries or over time. This is inconsistent with human capital-based explanations for inequality, but consistent with the view that inequality is due to inequalities of power.

Personally, I suspect that the "poverty is individual" view owes a lot to ideology: system justification and the just world fallacy cause people to blame the victim. Actually proving this beyond doubt is, though, perhaps impossible.  

Comments

[bill40]

As much as I hate to get involved in an academic spat none of this is relevant. We live in a world where the big swinging dicks get rewarded and compassion does not. Vocation, care and kindness are not correctly valued but I doubt there's much to do about that. Millionaires are made elsewhere.

It's all about policy prescription and a wide variety of them to capture all who fall or who simply don't fit in. The Job Guarantee, Citizens Income, Lifelong Learning, there's a whole host of policy at our disposal.

It all boils down into do you believe people must be coerced into waged labour.

[SK]

Technological advances mean that the society cannot employ all and therefore there is a need for Basic Income.
This will not only help the ones who need it but will also increase wages for the ones who can/are willing to work.

But obviously the status quo will be impact by this so our MPs are ingoring this solution.

[Boyd Ingalls]

In some perfect world reward probably would not be tied so closely to power. The list of reasons why is long and robust. But we live in this one. And so it goes as Vonnegut would say.

[Peter Maxted]

Great post!

You can even take it a step farther and discuss the consequences of pursuing a 'poverty is individual' policy if the Say's Law-esque argument that increasing human capital would lead to the creation of sufficient good, well-paid jobs does not hold.

Specifically, if this Say's Law does not hold then the 'poverty is individual' argument suffers from a fallacy of composition -- while one person, through increasing their human capital, increases their chances of landing a high-wage job, if all people increase their education and the number of high-wage jobs is fixed, all that will happen is more educated laborers will be underemployed.

[Ben]

There will always be poor thanks to the land monopoly enforced by the establishment. In the UK we have seen productivity rise over 20 years but the now both parents work to pay their inflated mortgage. Artificial scarcity and loose credit ensure property prices rise ahead of wages which soaks up all productivity gains.

We need LVT and an end to property speculation.

[e]

The causes of “poverty”, or indeed victims of, is indeed a conundrum for some, which is why departing from polite politics to land a smack on someone’s nose, metaphorically or otherwise, is not unknown.

[Brett]

It won't happen because poverty is relative regardless of your economy set-up. Make every 100 times richer in real terms, and the poor will still be comparatively poor even if their homes and cars are betters.

The "poverty is structural" band would say that this won't happen, because inequality, deskilling and unemployment are inherent structural features of capitalism, which would condemn some to (relative) poverty even if we were all smart and employable.

The socialist economies of the twentieth century in Russia and the Warsaw Pact had poor and rich people too, even if their wealth was in the form of in-kind privileges and political connections.

Poverty's relative, and endemic to any economic system with hierarchy and inequality - which is all of them aside from hunter-gatherers.

[Rumplestatskin]

I'd have to argue that your thought experiment makes only a structural argument.

Here's why.

People born into this structure don't get to choose their relative level of laziness, intelligence or other character the dictator sees fit to choose as a metric upon which to determine the distribution of wealth.

To make the claim that poverty is an individual phenomena, you have to argue that individuals are choosing their character. Not only that, but choosing their relative character. That somehow there is an incentive to display characters which make you poor rather than rich in this dictator's world.

Seems a little odd doesn't it?

Further, you then invoke a moral argument that the characters rewarded by monetary incentives are 'better' than others. You then define character failings based on outcomes under this regime, not by an 'objective' assessment of preferable character traits. After all, nothing about these characteristics in aggregate change the wealth of this society.

Lastly, if poverty was an individual phenomena in your example, it should be solvable by individual choices. Which it is not. At all. Ever. No matter what the individual choices are the distribution is the same, though maybe different people are in poverty at any point in time.

Whereas if poverty is structural, which is it fully in your example, it can be solved with a structural solution. Which it can be - by the dictator allocating wealth more evenly.

Here's my take on how to better distinguish these two arguments.

http://ckmurray.blogspot.com.au/2014/07/structural-vs-individual-poverty.html

[Deviation From the Mean]

In the 19th century USA the Chinese were seen as inferior and stupid, this is because they did all the dangerous work re building the railways. Their exploitation was justified on the grounds of the Chinese being inferior people. This attitude persisted for decades.

I think they now lead the world in Mathematics, among other things.

[rogerh]

For a thought experiment consider the case of humans versus the rest of the animal kingdom. We humans do not just pass on our genes but more lastingly we pass on our nests and burrows and chests of gold. So the accumulation of nests, burrows and gold seems the real difference between man and beast, take that away and voila we are all more or less equal.

The difficult trick is for the human race to accumulate the value generated by ancestors but avoiding it all falling into the hands of a few whilst preserving the instinct to generate value. Hard to see how a new Chatsworth House would get built under such a scheme. As for inheritance taxes, not terribly popular but I reckon we will see more of them one way or another.

[NoniMausa]

We must remember the definition of power. Setting aside individual strength and skills, which probably doesn't vary more than four- to six-fold, human power is simply the co-opted, coordinated strength of other people. The CEO is not 600 times as strong or clever as others, but has positioned himself so that the benefits of the labour of the many accrue to him.

Noni