Poor Economics

Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty (2011) by MIT economics professors Abhijit V. Banerjee and Esther Duflo was awarded the Financial Times and Goldman Sachs Business Book of the Year Award.

To begin, the authors provide helpful context about global poverty in the twenty-first century. While the percentage of the world living in poverty has fallen over the past decades, the number of people outside of China living in poverty has never been higher. The authors exclude China from this particular statistic because China has experienced an unprecedented rise in its overall economy and because so many people live there, China disproportionately affects global poverty statistics without being indicative of trends affecting the rest of the world. The World Bank's definition of poverty is living on less than $1.25 a day. Using this metric, a whopping 1.4 billion people live in poverty. Regardless of whether that percentage, overall, is lower than previous decades, economist Paul Collier explains why this is a huge problem: "An impoverished ghetto of one billion people is increasingly impossible for the comfortable world to tolerate."

The authors also add context about the prevailing theories on alleviating global poverty. For example, for decades, economists advocated for an approach where countries would increase their overall Gross Domestic Product (or GDP) and wait for those returns to "trickle down" to the lowest economic tiers of society. However, organizations like the World Bank, increasingly, are taking an opposite approach, advocating for "bottom up" instead of "trickle down," encouraging companies to increase opportunity and security for all citizens.



To test whether these new approaches are any better than the old, the authors embarked on 240 randomized control trials to test how effective incentives are at lifting people out of poverty, and why and when those incentives fail.

Looking at hunger, the economists found that international aid groups should rethink their approach to hunger alleviation programs. They found that the majority of impoverished people don't actually go to bed hungry; however small their amount of income might be, it's usually enough to pay for food. This does not mean that hunger is not a major problem. Instead of approaching food aid programs depending on the severity of poverty or cost of food in a given country, the authors recommend thinking about how countries' most vulnerable classes – in particular, children and pregnant women – can access the food they need to ensure good health.

Exploring health care, the authors found that the problem with many philanthropic efforts related to health care is that they focus on moon-shot solutions such as curing cancer. Though, obviously, these are important endeavors, they are also expensive. Therefore, the cost-per-patient value of these programs is incredibly high. On the other hand, the authors say programs that address diseases that could be eradicated through simple, inexpensive programs, which we know work, such as prophylactic distribution and training, and immunizations, would be hugely beneficial for the world. Preventative care is the most effective care, they argue. Because the patients addressed aren't already sick, they recommend providing incentives for those who participate in these preventative programs.



Cash incentives are a common theme in the authors' analysis. For example, they recommend providing cash incentives to parents who send their children to school. While cash incentives might offend some people's delicate sensibilities about capitalism or meritocracy, the authors ask readers to consider how much cheaper it is to pay parents to immunize their children and to send them to school, than it is to pay to treat the diseases they would otherwise get, or pay for expensive electronics or textbooks that won't have any impact if the children weren't going to school anyway.

The authors also have surprising findings on family size. They found that the cost savings when families have fewer children aren't usually put toward improving the lives of those children. Rather, they are usually put toward caring for the elder members of the family, or toward saving for when those parents will be elderly themselves. They also found that the best way to keep families to a sustainable size is to empower women to take contraception into their own hands. Statistically, women tend to want to have fewer children than men, likely because they are usually the ones tasked with caring for them. If access to female birth control is given, the authors predict family size in developing nations will be lowered considerably.

Although it's difficult to conduct truly controlled scientific experiments in the field of economics because of the many random factors at work, the authors do their best to present a series of convincing arguments about how global aid money could be better spent to improve people's lives.