Are Economists in Over Their Heads?
Sociologists see economic decisions as being “embedded” in social relationships, just as psychologists see economic decisions as being embedded in a life of the mind. While the idea of social embeddedness is not new to economists, its role in creating and perpetuating poverty is not yet well captured in economic thought. This article discusses three overlapping levels of social embeddedness relevant to poverty. First, it considers the economic implications of interpersonal social networks: “social capital” as the concept has been developed and expanded by sociologists distinctly from their fellow social scientists. Next, it discusses how long-standing and ongoing cumulative social processes accentuate and accelerate the dynamics of poverty among social groups. Neighborhoods and racial groups are powerful examples of social groups where poverty dynamics are often self-reinforcing. Finally, it reviews how identity and culture influence economic decisions. In particular, it considers both how self-identification with social groups shapes behavioral choices and their attendant consequences, and how some social norms that constrain the choices of poor people are surprisingly resistant to change even in the face of radically altered economic circumstances.