Poor Economics

From EconWiki
Jump to: navigation, search

Poor Economics:A Radical Rethinking of the Way to Fight Poverty by Abhijit V. Banerjee and Esther Duflo argues that so much of anti-poverty policy has failed over the years because of an inadequate understanding of poverty. The book proves that a new approach is necessary, a more individualized approach for each nation, state, region is required for success. Previous techniques have been too universal, poverty is not an all in one solution. The authors prove thats pecific research and analysis of empirical data for particular regions must be applied when implementing policies. The book also emphasizes a trending topic in economics research; randomized trials. Through randomization, these trials create a similar baseline, so the actual change from policy can be derived. These unbiased trials create a similar. The battle against poverty can be won, but it will take patience, careful thinking and a willingness to learn from evidence. [1]. The book is broken into two sections: Private Lives and Institutions.

Randomized Trials

In order to discover the most efficient solutions to poverty, the most effective policies must be implemented. If the agricultural sector of a nation is struggling in grave poverty, then implementing policies to stimulate the urban sector would be inefficient. Randomized trials coupled with empirical data help eliminate these mistakes. What previous trials and studies failed to do was eliminate all the other variables that are different between the two subjects. For example, if the effects of schooling on health are being examined simply comparing children in school to children out of school would be wrong. The children in school may live in different areas, have access to better social networks, government services, and sanitation. If a policy was implemented based on this non-random trial, it would be an improper use of government funding and wouldn't lift people from poverty. Randomized trials help economists find the true treatment effect, if this effect is statistically significant, then the policy should be implemented.

Private Lives

Private Lives focuses on hunger and health as a source of poverty. They cause a cyclical chain of events that cause people not only to remain in poverty once they are there, but subsequently find it increasingly harder to get out of poverty over time. Poverty and Health traps exemplify this idea perfectly. The impoverished find it difficult to provide basic necessities such as health to their families causing them to become sicker and sicker over time. This sickness requires them to stay out of work and makes it increasingly difficult to pay back loans used to buy medicines. The extremely simple, effective and inexpensive solutions - mosquito nets, water purification pills, vitamin-fortified grains - studied by Banerjee, Duflo et al. seem like the perfect way to tackle these traps, but how should they be provided? Should they be given out for free? If so, the people might think that they are useless because they are free and not use them any way. Should they be given at full price? This might cause the number of these items bought to fall dramatically and will render them near useless. Policies such as subsidizing and educating the people on the uses of the products pose as viable options as well. Banerjee and Duflo state that if you are able to understand how poverty truly affects people and their economic, psychological and social behaviour, then you can answer this question. [2]

Institutions

Institutions focuses on loan agencies, NGOs, microfinance initiatives and local politics which all have important roles to play in the eradication of poverty. Yet many of these institutions are, according to Banerjee and Duflo, subject to "The Three Is" - Ideology, Ignorance and Inertia - which are the main reasons why past measures have failed.[3] However, some instituions have been able to provide some help to the poverty stricken. MFIs like the Grameen Bank for instance have been able to provide small loans to those in need of them and they have a surprisingly high repayment rate of around 95%. [4]

Poor Economics is a frequently discussed topic amongst economists. Although the topics discussed in the original write-up are relevant and important what is not talked about yet a very strong contributor towards poverty is the lack of education. The beauty of education revolves around the fact that it empowers a person with the ability to comprehend information and therefore make decisions. With a lack thereof a person is essentially in this world crippled and handicapped. It is safe to say the quality of labor increases due to one's quality of education. In countless classes and on the mid-term we took a look at the dispersion between whether it is more cost-efficient to go to college versus going straight to the work force. The reality is it matter what race the person is and from what socio-economic status the person hails from. Poverty is universely felt by all, however in order to beat it one has to take precautionary steps the first and most important one however is to arm one's self with an adequate education.

  1. http://pooreconomics.com/about-book
  2. http://www.significancemagazine.org/details/review/1312101/Poor-Economics-A-Radical-Rethinking-of-the-Way-to-Fight-Global-Poverty-by-Abhiji.html
  3. http://www.significancemagazine.org/details/review/1312101/Poor-Economics-A-Radical-Rethinking-of-the-Way-to-Fight-Global-Poverty-by-Abhiji.html
  4. http://www.grameen-info.org/index.php?option=com_content&task=view&id=452&Itemid=526
-"Poor Economics | Poor Economics." Homepage. Web. 24 Apr. 2012. <http://pooreconomics.com/about-book>.
Personal tools
Namespaces
Variants
Actions
Navigation
Toolbox