Where does the Poverty Equilibrium come from? How do its restoring forces act?
I can’t claim to know the answer, but let’s spend a few minutes trying to figure it out.
Let’s stick with Eliezer’s definition of poverty as extreme difficulty accessing the necessities of life. That is, if it’s very hard for you to afford, say, housing, you’re in poverty.
It is not difficulties affording luxuries; just necessities. Obviously this is a little tricky because “necessity” is a spectrum, not a binary (is a school for your kids where they’re safe from violence a luxury or a necessity?). But let’s ignore that for now and pretend we can 100% accurately classify goods as either necessities or not (“luxuries”).
Imagine all the necessities are free and plentiful. You can have as much oxygen as you want, plenty of food, clothing, a 1000 meter house, etc. Is there any poverty in such a world? Obviously not.*
Now increase the price of those things to one ($1) dollar. Is there poverty? Very likely.
Consider for example someone who is extremely mentally ill, so much so that they are unemployable. They cannot scrape together even $1 for these necessities. Maybe mental illness (or addiction) is a special case, you say. Ok; there are other classes of people who can’t work: the disabled and the elderly.
These cases are easy enough to deal with; they are what welfare states are for. The government provides either money or resources directly to people who cannot afford them. (Family, charitable donations, or mutual aid societies could play a similar role)
Simple enough, but that was with the cost of necessities fixed at a very low price. What if we increase the price and/or let it vary based on market forces?
Not much actually changes except the classes of people who can’t afford necessities expands to include some who can work but either can’t work enough (e.g. some disabled people who can work, just not very much) or don’t have valuable enough skills, so they can’t afford the prices.
This group could be larger or smaller depending on factors like overall workforce quality/skills and how expensive the necessities become. We can reduce its size by various strategies such as education/job training to improve skills or supplying more of the necessities to reduce their prices. But fundamentally there will always be some people in a market economy who can’t afford the basics.
Not all hope is lost! The government can extend its welfare programs to cover these people too. It is possible there can be logistical issues with this (for example, the country is too poor to actually do so; or government subsidies increase prices so much that even more people cannot afford the necessities). But these are separate empirical questions. Fundamentally, in a market economy, there will always be some poverty unless the government intervenes, and possibly even after the government does.
I can’t claim to know the answer, but let’s spend a few minutes trying to figure it out.
Let’s stick with Eliezer’s definition of poverty as extreme difficulty accessing the necessities of life. That is, if it’s very hard for you to afford, say, housing, you’re in poverty.
It is not difficulties affording luxuries; just necessities. Obviously this is a little tricky because “necessity” is a spectrum, not a binary (is a school for your kids where they’re safe from violence a luxury or a necessity?). But let’s ignore that for now and pretend we can 100% accurately classify goods as either necessities or not (“luxuries”).
Imagine all the necessities are free and plentiful. You can have as much oxygen as you want, plenty of food, clothing, a 1000 meter house, etc. Is there any poverty in such a world? Obviously not.*
Now increase the price of those things to one ($1) dollar. Is there poverty? Very likely.
Consider for example someone who is extremely mentally ill, so much so that they are unemployable. They cannot scrape together even $1 for these necessities. Maybe mental illness (or addiction) is a special case, you say. Ok; there are other classes of people who can’t work: the disabled and the elderly.
These cases are easy enough to deal with; they are what welfare states are for. The government provides either money or resources directly to people who cannot afford them. (Family, charitable donations, or mutual aid societies could play a similar role)
Simple enough, but that was with the cost of necessities fixed at a very low price. What if we increase the price and/or let it vary based on market forces?
Not much actually changes except the classes of people who can’t afford necessities expands to include some who can work but either can’t work enough (e.g. some disabled people who can work, just not very much) or don’t have valuable enough skills, so they can’t afford the prices.
This group could be larger or smaller depending on factors like overall workforce quality/skills and how expensive the necessities become. We can reduce its size by various strategies such as education/job training to improve skills or supplying more of the necessities to reduce their prices. But fundamentally there will always be some people in a market economy who can’t afford the basics.
Not all hope is lost! The government can extend its welfare programs to cover these people too. It is possible there can be logistical issues with this (for example, the country is too poor to actually do so; or government subsidies increase prices so much that even more people cannot afford the necessities). But these are separate empirical questions. Fundamentally, in a market economy, there will always be some poverty unless the government intervenes, and possibly even after the government does.