A Summary of "Poor Economics"
Redefining the way we help the poor.
Poor Economics is an in-depth guide that anyone trying to understand more about the nature of poverty should read.
Instead of presenting grand ideas and broad conclusions, the book dives into the biggest areas in the lives of the poor and discusses research-backed strategies to help. The authors are leading figures in the research scene around poverty, and most of the ideas in this book come directly from their research.
Disclaimer: This summary is an attempt for me to think deeper about the content of the book before going off to do my own research. I don’t make any arguments here or present much evidence; this is a pure summary of the conclusions I made from reading the book. Research supporting the arguments in this book can be found on the official website.
Part 1: Private Lives
A Billion Hungry People?
It’s common for people living in developed countries to equate poverty with hunger. We assume that just giving more food to the poor will help them substantially.
This usually isn’t true. There’s enough food production that relatively few of the poor truly suffer from a deficiency of calories.
What we need to focus on is an increase in quality food for the poor instead of merely increasing the quantity.
This means that food policies that aim to provide more cheap staple foods often aren’t as effective as we’ve become conditioned to think. Instead, a key focus in food policy should focus on trying to add more nutrients to foods that the poor want to eat.
Low-Hanging Fruit for Better (Global) Health?
The poor often reject cheap preventive measures for costly cures.
There are two big reasons for this:
Absenteeism in public facilities in the developing world plays a big role by degrading trust and forcing people to turn to illegitimate doctors.
They don’t have enough support. It’s easy to preach about health when your water is automatically treated and vaccinations are near-mandatory (among many other things).
If we want to increase global health, we need to build better commitment devices that nudge the poor in the right direction and find ways to increase the effectiveness of public facilities.
Top of the Class
A lot of the issues with the education of the poor come from harmful expectations.
Education is seen as a risky investment that can pay off for the family in the future. From this point of view, the most logical approach for families is to concentrate their resources on their “smartest” children to increase the chances that the investment pays off.
This causes elitist bias within schools instead of cultures that help every kid learn. Parents and teachers alike have a deadly combination of high expectations in terms of what should be taught and low faith in the abilities of most students, which creates an education trap where there doesn't need to be one.
Ways to fix this:
scale down expectations
focus on core skills
use tech to make up for absentee or biased teachers
“Recognizing that schools have to serve the students they do have, rather than the ones they perhaps hope to have, may be the first step to having a school system that gives a chance to every child."
Pak Sudarno's Big Family
A common argument in favor of family planning is that when there are more kids, each one is worse off because there's less investment per head.
The authors of Poor Economics dispute this. There’s no "smoking gun to prove that larger families are bad for children."
This makes sense in the context that kids are often seen as investment opportunities. The more kids you have, the greater the chances that at least one will be willing and able to take care of you in the future. Fewer kids means that the parents need to save more for themselves to ensure that they can take care of themselves.
This is also a large contributing factor to the high degrees of sexism in the developing world. Boys are often seen as better investments than girls.
The most effective family planning policy could be to provide better safety nets that ensure that the poor don’t need to have kids as investment opportunities. They can have as many kids as they want, and raise them well. This could also be an overlooked approach to fighting sexism in the developing world.
Part 2: Institutions
Barefoot Hedge-Fund Managers
The poor are like hedge fund managers except that they deal with higher risk for smaller rewards. This makes it valuable to investigate ways that we can lower the risk they bear.
The micro-insurance movement has attempted to step into this gap, but demand isn’t as high as it might seem. Government subsidies on insurance could help develop the micro-insurance market by gradually helping the poor accustom.
The Men from Kabul and the Eunuchs of India: The (Not So) Simple Economics of Lending to the Poor
It’s usually not profitable for traditional banks to investigate and lend to the poor, which has left a gaping hole that’s been filled by loan sharks and a growing microcredit movement.
However, microcredit is yet another sector of microfinance that isn’t as effective as it seems on paper. Microcredit has reached many of the poor, but the only reason it can do so is because these institutions only provide low-risk loans.
This is fine for the vast majority of people, but it prevents financing for building bigger ventures (because those are incredibly risky). There’s a lot of potential in developing a new way to finance medium-size ventures started by those too poor for banks with ideas too risky for microcredit.
Saving Brick by Brick
It’s hard for the poor to save because:
they have fewer commitment devices (pension plans, etc)
they have higher stress (leads to poor decision-making)
their long-term goals are further from reach (so it’s hard to justify saving for those goals)
Combatting this will require building better infrastructure that allows the long-term goals of the poor to be more achievable.
We can do this by:
Expanding microcredit (which can give them a boost in working towards their goals)
Building better insurance
Bettering education
Expanding job access
Building better safety nets
Helping the poor see that they have a future worth saving for and lowering their stress will lead to better decision-making.
“It is easy for those of us who have enough, living a secure life, structured by goals that we can reasonably hope to achieve (that new sofa, the 50-inch flat screen, that second car) and institutions designed to help us get there (savings accounts, pension programs, home-equity loans) to assume, like the Victorians, that motivation and discipline are intrinsic…It is too hard to stay motivated when everything you want looks impossibly far away. Moving the goalposts closer may be just what the poor need to start running towards them.” (emphasis mine)
Reluctant Entrepreneurs
There's this prevailing myth that the poor are natural entrepreneurs forged by hard circumstances. This perspective is supposedly backed up by the fact that a significant percentage of the poor have businesses.
This is wishful thinking that’s projecting a Western perspective.
The types of businesses that the poor can start (selling goods on the street or having a small shop) are usually alternatives to having a stable job and are often more stressful and less profitable. They’re doomed to cap out at a certain point (you can only sell so many goods a day).
It’s telling that the most common dream the poor have for their children is to be salaried government employees (positions known for stability).
One of the easiest ways to push the poor into the middle class is to provide easier access to stable jobs. This means building better infrastructure for moving to cities and expanding more jobs to rural regions.
Policies, Politics
The most well-intentioned policies can fail due to terrible implementation.
The three Is of ineffective policies are:
Ideology
Ignorance
Inertia
It’s also important not to give up on countries with corrupt and ineptitude governments. We can find slack within these governments to improve policy at the margins through careful understanding of each case. This can lead to incremental changes that will hopefully compound.
In Place of a Sweeping Conclusion
There are no one-shot cures to poverty, but there are 5 key things that we can notice from all of these case studies to improve the lives of the poor:
1. We need to close the information gap. The best information campaigns tend to be:
Non-general statements
Simple and attractive
From credible sources
2. We need to better commitment devices that make the right decision the default. Some common issues are:
piped water
making sure the poor get enough nutrients
no automatic way to save
3. There are good reasons that there’s no demand for some markets. In those cases, it might make sense to give away certain goods and/or use government intervention to create those markets.
4. Poor countries aren't doomed because of a history of corruption
5. Expectations of ability turn into self-fulfilling prophecies. Changing those expectations can have greater impacts than you might think.
I’ll end off with the last sentences from the book.
"Poverty has been with us for many thousands of years; if we have to wait another fifty or hundred years for the end of poverty, so be it. At least we can stop pretending that there is some solution at hand and instead join hands with millions of well-intentioned people across the world—elected officials and bureaucrats, teachers and NGO workers, academics and entrepreneurs—in the quest for the many ideas, big and small, that will eventually take us to that world where no one has to live on 99 cents per day."