Charles Karelis, the former head of Colgate University, says no. Rather, he argues we've been approaching poverty reduction bass-ackwards because we've been employing strategies that would work on poor people with the attitudes and incentives of non-poor people, but that fundamentally misunderstand the incentives of the folks who actually make up the impoverished. I haven't read the book, but Tyler Cowen summarizes some of its arguments this way:
if pains and troubles are high enough, extra pain and trouble just isn't so bad. You hardly notice it. But that overturns standard economic assumptions of diminishing marginal uitliity, and the rest of Karelis's model follows directly.
Poor enough people will accept risk in the downward direction rather than smoothing consumption, so they buy lots of lottery tickets. They also commit more crime, so they can have at least some joyous times, and they take lots of "stupid" chances. Yet the poor are not irrational or necessarily dysfunctional in terms of procedural rationality, but rather they are optimizing given constraints. [...]
The more the poor regard themselves as lagging the rich (rather than doing better than, say, their peers back home in Gujarat), the more stupid risks they will take. That's why poor immigrants are more value-maximizing than the poor that have lived in America a long time and adapted to American norms and expectations. The immigrants don't regard their burdens as insuperable and they are on standard downward-sloping marginal utility curves.
I think the issue of lagging the rich is less important than an individual's confidence in their own mobility. An immigrant from Gujarat is experiencing economic mobility in a very real and tangible way. Therefore, it's perfectly consonant with their experience that they can enjoy yet more economic mobility, and they should act accordingly. If you're convinced you can move up, you'll be willing to make more short-term sacrifices in order to assure your long-term trajectory.
Grow up in an inner-city ghetto surrounded by a lot of sticky poverty, however, and the odds for economic uplift might seem rather smaller. If you don't believe you can move up, then it's not necessarily worth engaging in the unpleasant short-term tasks necessary for economic advancement. People make sacrifices when they're convinced that they'll pay off. Without that assurance, why make the sacrifice?
