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Ten Principles of Economics - Part 45

Ten Principles of Economics - Part 45. Economics is the study of how society manages its scarce resources. In most societies, resources are allocated not by a single central planner but through the combined actions of millions of households and firms. Economists therefore study how people make decisions: how much they work, what they buy, how much they save, and how they invest their savings. Economists also study how people interact with one another. | CHAPTER 20 INCOME INEQUALITY AND POVERTY 453 IN THE NEWS Should the Government Try to Help Poor Regions Many antipoverty programs are targeted at poor areas of the country. Economist Edward Glaeser presents the case against this geographic approach. Help Poor People Not Poor Places By Edward L. Glaeser President Clinton s six-city New Markets tour earlier this summer signaled a renewed focus on the problems of the poor. But while the president s concern is appreciated by all of us who care about the islands of poverty in America s sea of affluence his proposals are fundamentally flawed. They may still help some of the poor but also risk repeating some of the worst mistakes of the Johnson era. The trouble with the president s recommendations is that they violate the first economic rule of urban poverty policy Programs should be person-based not place-based. Economists have long argued that place-based programs are a mistake. They strongly prefer person-based policies that create transfers entitlements or relief from regulation on the basis of personal characteristics. Examples of person-based policies include the Earned Income Tax Credit and the GI Bill. Place-based policies on the other hand give transfers or other government support on the basis of location. Examples of such policies are housing projects and enterprise zones. President Clinton s recent Rural Housing and Economic Development Assistance for Kentucky or the new Empowerment Zone Grant for East St. Louis Ill. are quintessential place-based policies. The problem with place-based programs is that they create incentives to keep the poor in the ghetto. By subsidizing the place not the person living there these policies make it more attractive for the poor to stay in high-poverty areas. Indeed current research shows that supposedly benevolent pro-poor housing and transfer policies play a major role in herding the poor into inner cities. It s hard to see the logic in artificially limiting migration and .