Standard economic models and poverty

["David Spitzley" <dspitzle@gw.wash.k12.mi.us>]

>>> Michael Harrington <mharrington@milken-inst.org> 01/12/00 02:58PM 
AS for economists, I think they do understand how the rich get rich, what
they can't explain is why poverty persists. Perhaps they have a blind eye to
the role of capital endowments and distribution but the pat answer is that
different endowments explain inequality - education, social and physical
environment, intelligence, wealth, natural resources, etc. They conclude
that policy can best address the problems of education and social
environment but we in COG and any astute observer knows this won't be
enough. 

-------------------------------------

I think the other problem is that poverty is pretty hard to tackle using 
standard economic models.  The persistence of poverty is not itself a 
surprising consequence of the standard model, as within that model you get 
based on what you've got.  It is difficult, however, for the standard model to 
describe widespread poverty amongst great wealth as either superior or inferior 
to the same economy distributed broadly.  Since no individual is considered 
more or less significant within the model, and there is no easy way to 
aggregate individual utility functions (i.e. add up individual happiness and 
sadness), there is no real way for the standard model to address the instinct 
held by most of us that concentrated wealth makes for a bad society.

I honestly believe that there >is< ground to be won in economics by trying to 
show that concentrated wealth tends to slow economic growth, and otherwise 
screw up the macroeconomy, as well as show that "stakeholder" ownership tends 
to produce superior microeconomic outcomes. Unfortunately, this is not an 
approach which "sings" to the inner being of most activists in the field of 
capital democratization.  I just happen to be on the skinny end of the bell 
curve (as usual)...

Oh, good to be back on the list (post Christmas hiatus)