Comment by chrismealy | Hacker News Reader

Comment by chrismealy | Hacker News Reader

Mike Konczal:

Here’s the normal story. Picture you are in a room with 10 people. Each of them has a slice of cake. How much you are willing to pay for a slice of the cake is the ‘marginal utility’ of having it, and the more cake you have the less any more cake is worth to you. You’d be willing to pay a $1 for the first slice of cake, but you’d only be will to pay 90 cents for the second slice. You’d only be willing to pay 10 cents for the 9th slice, and a penny for the 10th slice. Eating the 10th slice of cake in that room would probably make you sick, hence you want it a lot less than the first slice, which is delicious. That’s declining marginal utility.

Now picture you are in a room with 10 people screaming. You hate it when people scream, and you can pay a person to get them to stop screaming. Would you pay in a similar way to the cake example? Would you pay a $1 to get the first person to stop screaming, and a penny for the 10th person to stop screaming?

No. Getting one person to stop screaming would make very little difference in how much you dislike being in the room. Modern psychology tells us you might not even notice it. You’d probably only pay a penny to get that first guy to stop screaming. However getting the second guy to stop screaming might be worth 10 cents. And the last guy, the difference between some screaming and no screaming, might be worth the full dollar to you. The more quiet it got, the more a marginal difference in how quiet it is would be worth to you. There’s increasing returns to this good; the 10th guy not screaming is worth more than the first guy not screaming, which is the exact opposite dynamic of the 10th cake being less delicious than the first.

-- http://rortybomb.wordpress.com/2009/12/03/persistence-of-pov...

It is a commonly used argument that the lives of poor people are very hard and unpleasant and that dealing with the hardships sucks out all their energy and brings down their spirits so they can't take advantage of all the opportunities that middle-class people have to improve their situation.

The problem I see with this reasoning is that if you consider the entire range of standards of living which people had throughout history and geography, with maybe middle-age European peasants on one end and say Larry Ellison on the other, then on this scale, the standard of living of contemporary American poor is very close to the standard of living of the reasonably well off. From the point of view say anyone in communist Poland, as well as at least a billion people living today, what you call poverty would seem like mind-blowing opulence. On the other hand, I rather suspect that for anyone featured in The Real Housewives of New York, the lot of doctors and software engineers and struggling janitors alike must seem like horrifying wage slavery.

So, to claim that there exists a standard of living threshold, and that below this threshold life is objectively hard, whereas above this threshold it's easy, and that it so happens that the line lies between the poor and the middle class in contemporary America, you have to believe that we're looking at a very unique time and place. Of all the possible values that the threshold could potentially have, what are the odds that it would actually fall within this narrow range you're looking at? A hundred or maybe even fifty years ago in the US (and much more recently in many countries around the world), almost everyone's standard of living was way below that of contemporary poor. Do you think all these people were equally as incapacitated by the harshness of their lives, unable to make rational decisions and work to improve their lives? If the civilization does not collapse for one reason or another, chances are in fifty years time even the poor will have the standard of living as good as wealthy people have now. Do you think the poor of the future will not suffer from this ten-people-in-a-room-screaming effect?

So, to claim that there exists a standard of living threshold, and that below this threshold life is objectively hard, whereas above this threshold it's easy, and that it so happens that the line lies between the poor and the middle class in contemporary America, you have to believe that we're looking at a very unique time and place.

Not only that, but you also need to ignore most of the world. Even traders, programmers and executives living in Bandra (a part of Mumbai more expensive than Manhattan) tend to have lifestyles worse than many US poor people. I.e., cramped apartments in poor condition, long commutes and very few luxuries.

Given this, the Karelis/bee sting/screaming guy theory would predict Mumbai's corporate lawyers would behave similarly to the US poor - never saving for the future, blowing their money on crappy food and booze rather than education, etc.

Strangely, that doesn't happen.

It's true that people have a sort of baseline happiness, and that they tend to drift back to that level of happiness when left in a stable situation. So, it's true that being poor doesn't automatically make you unhappy. But let's be honest: being poor doesn't help.

I also object to the relative definition of poverty, that if you have less than those surrounding you, you're poor. I've always felt that an objective definition is much more useful. Suppose we objectively define "the poor" as everyone not having access to basic human rights? Can you honestly say there aren't many people that fall into that category even today? To me that's a category worth reducing to zero.

From Charles Karelis. Surely, as you point out, there is no absolute standard of poverty across different times and places. Nevertheless, the suffering of poor Americans today, some of whose objective circumstances would have qualified them for the middle class back in the U.S. of 1930, is real suffering, and seems to call for a response. In addition, I think it lowers the marginal utility of small improvements in their consumption. The conundrum is, that in a (we hope) super-prosperous future America, there will be poor people (by the standards of that time), who are objectively better off than middle class Americans today, and it is (for many people at least) hard to care a great deal about their plight. So do we absolutize contemporary intuitions about poverty and say these future people won't be "really" poor, or do we say they will be really poor but that that doesn't impose a moral obligation on us today, e.g. to conserve so they will be less "poor"? Neither answer feels totally right.

I wish the proponents of this theory would carry it to it's logical conclusion: we should tax the poor more heavily than the middle class. Sure, we might be imposing one extra screaming guy on them. But so what? The harm to them is minimal, only $0.01 of diminished utility.

This is the logical conclusion to Karelis' bee sting theory of poverty. Yet neither he nor any of his proponents are willing to follow their theory to it's logical conclusions. I wonder why?

From Charles Karelis. This objection is treated in my book. I show that it would take only a small transfer from the richest people in the U.S. to the poorest to relieve their poverty entirely, which would have the greatest positive impact on aggregate well-being of all the options. The conventional wisdom, that the poorest people have the greatest marginal utility for a dollar, salves the conscience of the middle class by implying that small transfers can make a big positive impact on the well-being of the poorest people. The inconvenient truth is that only sizable transfers can make a significant difference to the well-being of the poorest people.

Maybe it's treated in your book, but your post here is dodging the issue. It's also internally contradictory:

I show that it would take only a small transfer...

The inconvenient truth is that only sizable transfers can make a significant difference...

So instead of dodging the issue, could you answer this question: if the small or large wealth transfers you describe are politically unfeasible, would you favor taxing the poor as a second best alternative? If not, why not?

From Charles Karelis. To begin with, I don't think the kinds of income transfers from rich to poor that would significantly raise aggregate utility from consumption are in fact politically unfeasible, so I am, as you appreciate, reluctant to get into this what-if area.

That said, taxing the poor and transferring the money to the middle class let alone to the rich would carry big negatives according to my approach. We ought to care not only about maximizing aggregate satisfaction from consumption, but about autonomy, including maintaining people's incentives to acquire what they want to consume through their own efforts. Making poor people even poorer will (on my hypothesis) lower (not raise) the marginal utility of their consumption and thereby undermine (not strengthen) their motivation for self-help. If someone with six bee-stings has enough salve to relieve five and the state takes that salve away, this action will probably reduce rather than increase the effort the person will make to get the salve needed to relieve a single sting, because the salve needed to relieve a single sting will make less difference now that the other salve has been confiscated.

A fuller answer to your objection than I can give here--including a discussion of the roots of the moral intuition behind your question--is offered in the last chapter of Persistence of Poverty.

This is a brilliant example, but even after reading the article, I feel like it needs a stronger connection to the problems of poverty.

So, anyway, Guys, the situation where you're in a room where people are screaming is poverty, but its only one moment of poverty. In poverty, you go into that room over and over and over again. You can't afford to keep your whole reality quiet, but you can buy a moment or two of peace, by paying more money than you can rightly afford to spend, if you've a longterm goal to support. You may go into debt for a TV to relieve the oppresive boredome, or spend change you shooldn't on a sweet, to eat something nice.

Those breif respites are massively appealing, even though they don't last, and very possibly set you back, because remember, you're living in a situation where everyone is always screaming. A moment's peace is worth not making it out.

If you tie in the theory of addiction this makes even more sense; addictive substances provide some temporary escape or pleasure but you quickly feel as bad as before or maybe even worse, which makes the next "escape" even more compelling.

The point is that solving one problem feels attainable, but having dozens of problems just makes you feel hopeless and resigned.

If you change the good to be "five guys stop screaming" or "ten guys ..." then then MU may be once again diminishing.

A common example of this is given with eggs. You may only like omelets, which take three eggs apiece. So, a third egg is worth more to you than the first two. But if the good is considered as "three eggs", a different good entirely, the LoDMU holds.

From Charles Karelis. Of possible interest, the "lumpy good" rebuttal of my hypothesis is treated in detail in my book. In essence, while there are obviously goods such that sub-threshold quantities have no utility whatever (fewer than four tires or two shoes, perhaps), most "reliever goods" are not examples of that. For instance, if I have six dents in my car, I prefer the hammering out of the last unfixed dent to the hammering out of the first unfixed dent, the one that leaves five more to go, BUT I prefer the hammering out of that first dent to the hammering out of none.There is more to it, and lots of examples in the book, but that's the heart of the matter, in my view.

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