Thursday, January 12, 2012

poor economics

I posted this on goodreads, but McKay asked about it in the comments of the blog post I mention in the review, so I thought I'd post it here too to answer his question:

I mentioned this book on my blog here, and now I've finally read it!

I'll admit I was a little disappointed that the book wasn't as detailed as her lecture on the actual experiments the Poverty Action Lab has been involved in. There was much more on larger picture topics and brief summaries of experiments and how they contributed to the dialogue on how to address that particular topic within development circles.

That said, it was still a fascinating read and I felt like it's been the best thing I've read to help me catch a vision of what life is like for the international poor- those living on less than $.99 per day. (If you want to shed some light on what life is like for the poor in America, I'd suggest Nickle and Dimed by Barbara Ehrenreich or Promises I Can Keep: Why Poor Women Put Motherhood Before Marriage by Kathryn Edin and Maria Kefalas.)

Here's the thing that just drives me crazy when I read about/think about the poor: the little inconveniences and set backs they face. I mean, the little things that can ruin MY day, like not being able to get in to see the doctor that day, or a fee I wasn't expecting, or a price hike on my favorite yogurt, are the kinds of things that determine whether or not the poor get to EAT that day, or whether they'll be able to keep their business open. And those inconveniences are in addition to all the work the poor have to do to make the right choices for their welfare that we take for granted. For instance, they have to chlorinate their own water- every time they want to drink it or cook with it- if you forget, you can get water-borne diseases which can give you diarrhea which kills millions of children every year. They have to make an effort to buy iodized salt. They can't eat fortified cereals every morning, so getting adequate micronutrients is a chore. There's no social welfare program (like social security) to back you up, and banks are essentially inaccessible to the poor. When they can manage to save money, they have to use their (now very limited) supply of self-discipline to not spend it. It's so unfair that it makes my insides wriggle.

However, this book was full of relatively easy, simple, and inexpensive ways to ameliorate those inconveniences. Like putting cheap chlorine dispensers next to the public water source, or subsidizing iodized and iron rich salt, or simple information campaigns with usable information ("Sex with older men is more likely to give you HIV" decreased the number of high school girls who had sex, got pregnant, dropped out of school, and contracted HIV compared with the control group.) Deworming children, at the cost of about $1.50 per child per year, increased their average yearly wage by the 10's of percents.

Banajerjee and Duflo propose focusing on these small forms of assistance and little nudges towards making the right decision rather than trying to find some large-scale magic bullet to eradicate poverty. Let's get this generation a little healthier and a little more educated, and get some simple policies in place and then we'll be a little step higher for the next generation. I found it hard to disagree. They often mention Jeffrey Sachs and his book "The End of Poverty" (which is currently on my bookshelf) as an opposing view. I'm curious to see what Sachs has to say.

Also, here's the word on microcredit, according to Banjerjee and Duflo. It's great for giving small loans to the poor to run small businesses. However, many of these businesses fail because so many of their neighbors go into the same business and there's not enough demand. Microcredit loans do not encourage risk-taking (and bigger businesses mean bigger risks) since most loans have to start to be repaid only a week after taking out the loan, and the other debtors in your lending group don't want you to do anything to jeopardize their ability to make a payment. Microcredit loans aren't usually practical for educational purposes (like a tuition payment) since you may or may not have the money to start paying it back a week later. In studies they did, they found microcredit users purchased more consumer goods, but didn't spend much more on education or health. Essentially, they say, microcredit loans are a way for the poor to ensure they have a job, which is no small thing, and is a useful service, but it's not a cure-all for poverty.


McKay said...

Thanks for the follow up answer! Since I rarely go to the actual blog page (I just get the feed through my reader), I don't see all the extra links on the blog pages.
Since you mentioned education and microloans, I think it would be interesting to see results from the Perpetual Education Fund, especially when compared to other forms of aid.

Janssen said...

What a great post. I loved reading about this.

Anna said...

very fascinating. I have wondered if microloans have made much of a difference. We have participated in Kiva a bit and it has seemed like they pay back really quickly and I wondered how that worked. I should look into it a little more...Thanks Heather!