Why are the Poor poor?

A few days back, we were talking about the notoriously unpredictable maids, which is probably a favourite talking point in our demographic profile. Not surprising, given that the maids/drivers (euphemistically known as the 'Support Staff') play a critical role in determining the quality of our lives. The common refrain is that they lack a work ethic (never mind the times when you log out of work on the excuse that your child is not well, which interestingly seems to coincide with a cricket match) or worse, they lack the foresight to calculate the long-term effects of such erratic behaviour. And so the reasoning goes - this is why the average maid or driver does not seem to stick around in any job for a very long time.

This whole line of argument sounds specious to me - you would expect the exact opposite from a rational being, especially where the costs of such behaviour can be enormous. When you are at the bottom of the economic pile, reason has it that you should be trying without any loss of focus, to climb up the ladder. Continuing along those lines, you should be maximizing the marginal utility of your time and money - the former by working as much as you physically can and the latter by ensuring an optimal consumption mix on current expenditure (e.g. food, shelter etc) as well as capital expenditure (e.g. investing in your child's education). But reality, as we know, is far removed from this rather 'utopian' view of poverty. And so the question arises, why do the poor tend to be more prone to taking drugs, unable to keep a job, do not send their children to school etc. I am not sure there are any clear answers (at least traditional economic theories do not seem to work in such cases).

There is an emerging point of view that the "biggest cause for poverty may be poverty itself". See this article "The Sting of Poverty" that appeared recently in the Boston Globe. The main thrust of this argument is that it is not a question of a lack of opportunity or self-discipline - but given the multitude of their problems, there is no clear incentive in trying to resolve one/some of them. There is not enough data or studies to prove that this is actually the case - but it does seem like a plausible explanation for the seemingly odd behaviour (defined in economic terms). And if it is indeed true, then this could have implications on public policy. For instance, it becomes clear that targeted schemes (like mid-day meal schemes) may not be the most optimal allocation of resources since these schemes just end up targeting one part of a multitude of problems - and moreover, that solution may be too small in comparison to the overall problem of poverty to have any discernible impact. A better alternative could be to give the poor money and let them make their choices (the NREGS is one scheme which could be unwittingly moving in that direction). Easier said than done - since such a policy prescription has its own issues - the important ones being, how do you measure outcomes in such cases and more importantly, hand- outs may end up creating a disincentive to work.

Either way, this promises to be an increasingly interesting area of work, one that could determine welfare policies down the line. At the very least, this alternative is questioning the conventional wisdom of microeconomics that has dominated the landscape so far.