My Understanding Of Poor Economics
We have all heard the phrase: The poor are poor because they don’t work, study, save or have too many children. We all speculate about the world of possibilities and make assumptions about the psychology of the poor. But very few know the reality of it all. This book written by the authors/Economists, Abhijit V. Banerjee and Esther Duflo, aims to explain the many obstacles, poor people, face in their daily lives that limit their growth and ability. It proves wrong many of the ideas we have about why the poor are poor.
Beginning with the very basics of whether aid is good for the poor. Will handouts help or prove to be devastating? A very unique and powerful point of this book is that the authors have written it taking into account multiple views. Those of the poor themselves and economists with competing theories. Some economists say handouts lead the poor to take them for granted and not make optimum utilization. They believe in paying full price or at least subsidization. Others argue that something as simple as giving away free bed nets will give them the nudge they need to get out of poverty by reducing death through malaria. But that alone would not solve poverty as the poor face a variety of different issues. Hunger being one of them. Evidence and experiments strongly suggest that proper nutrition will greatly increase earnings; however, whenever the poor earn a little extra, they spend on better-tasting food instead of cheaper food. This happens to be an existing theory where inferior goods have a decline in demand with an increase in income leading us to believe educating them may help, but the poor just don’t want to stay in school. Governments have tried rewarding the families and kids to get them to complete schooling but sometimes even that doesn’t work as is the case with completing vaccination doses. This is because the poor don’t see any immediate benefit. Rewards help bring a sudden but temporary surge in enrollment and vaccination rates, but completion is rare. The benefits of the two are reaped sometime in the faraway future which the poor don’t see. Although this doesn’t mean that the poor don’t care about health. The poor are willing to spend on healthcare when needed. In fact sometimes more than what is required. When the poor go to doctors, they are often overprescribed because the poor believe if there is immediate relief, the treatment works. The doctors inject painkillers or other relievers to aid them temporarily to give them the impression of treatment. Additionally, rural health centres have low attendance of nurses. The poor far too often meet with disappointment when visiting these clinics because of this. The poor believe in living with the little pleasures of life with the little they have to make their life more bearable. This is also the reason why they end up being unable to save money. The authors went around asking many poor people why they do not save. They often responded with “We spent on food or feeding the guests or on entertainment.” The poor do spend a lot on festivals because it makes them happy. Saving that money would be great but they wouldn’t get the benefits now, instead 10-20 years later. The poor, for this very reason, keep whatever they can to save in savings
accounts in different places to prevent impulsive spending and make sure they have a little left. One place this investment is very much evident is in rural areas where you see incomplete houses. You would think it is a better idea to get it done all at once but the poor know they would not be able to keep the money at hand for very long. This is why they make smaller investments into building the house brick by brick since that allows them to spend money on something productive. Houses and education bring us to the next big issue: Family size. Why do the poor have so many kids? Is it because contraceptives are expensive or inaccessible? The economists tested both theories and realized that it is neither. There are a few factors that come into play. One being the poor have multiple kids to ensure that at least one of them will look after them in their old age. The life the poor live is difficult. Not all survive till a good age and those who survive don’t and can’t always take care of their parents. This is a way of ensuring security in the future. Another is that the women don’t really have a choice. When asked privately and in the presence of the spouse, the women had varying answers. When asked privately, they were often against having so many kids. But they did not have a say in family matters regarding important decisions such as these even though it is mostly women in rural areas who are breadwinners of the family. They don’t find proper jobs and hence take up entrepreneurship for daily bread. Now, the poor are excellent entrepreneurs. They work well even under constraints, and uncertainties and have extremely creative ideas. For example, one set of women entrepreneurs took wet sand from a nearby beach, spread it out on the road so that hot tires of cars could dry them, scraped them off, and sold them at their village as dish scrubs to earn money. But if their ideas and execution are so good, why are they so poor? They do have huge margins of revenue, sometimes greater than that of some of the most successful businesses, however, the loans they take have such high-interest rates that they lose most of the money to repay them. Then why do the moneylenders charge such high-interest rates? They could reduce them and help the poor out a little more. Well, the moneylenders are doing their best. The rate of default on loans is quite high and money lenders need to make sure they secure all money by the few that actually repay. The cost of providing loans to the poor also happens to be high due to the difficulty in obtaining their records and information, which is why formal institutions often shy away, leading to these high interest rates. The poor do not consider entrepreneurship to be a great way of earning unlike their urban rich counterparts. They look at entrepreneurship as a last resort to earn their livelihood. When asked about the kind of work they would like their children to do, government jobs and corporate services are the most common answers. They do not want their children to be entrepreneurs since their goal is to have a stable income.
Economists cannot explain why and when an economy will boom and what causes that much-needed “spark” however they state that an educated and healthy population surely helps. It can be concluded that there are a few problems that should be dealt with to help the poor and “make their lives more bearable.”: The poor are not educated about critical issues and aspects of life; The poor do not have the luxury of having many decisions made for them as is true for their urban counterparts; Not all markets are made for the poor (Insurance and loans); Management and policies of poor countries should be patiently created with much thought. We say this because oftentimes we do not want to accept the “logic behind the decisions of the poor.” Poor countries will not grow overnight but with the right push and policies, the wait time can be made more bearable for the poor by helping with the right social policies.
~Shireen Banerjee
Email: shireen20banerjee@gmail.com
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