Poor Economics – book

Rich and Poor Serving Inequality
Image by epSos.de via Flickr

Amazon.com offers samples of many of the books available in Kindle editions – usually one or two chapters. The samples are available for Kindle apps on a computer or mobile device as well as on Kindle e-readers. It’s a great way to dive into a new topic.

The recently published Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty applies the science of experimentation to tough questions of economic inequality and global development.  Like Paul Collier’s The Bottom Billion, Banerjee and Duflo know the standard economic theories and how they are used to predict the outcomes of policies and programs designed to decrease absolute poverty and lead to greater development.  Yet they can’t help notice the many failures of development programs.

Rather than thinking that poor people simply don’t understand what actions or choices would be in their best interest, Banerjee and Duflo asked whether the theories that work for middle-class finances also explain the way money works for the poor – to see if a “poor economics” existed. The answer is Yes! Both their book and the accompanying website filled with data, graphs, and references to the underlying studies build a solid case – and provide fascinating examples.

Poor Economics – How to live on 99 cents a day

I’ve often heard of people living on less than $1 a day and consoled myself with the thought that the $1 buys a lot more in those countries.  Banerjee and Duflo demolish that perception: the $1 a day refers to $1 of developed world purchasing power. How does one scrape by with 99 cents a day of purchasing power? Drawing on dozens of studies in both rich and poor nations, each exploring very particular questions through randomized controlled trials, they build an understanding of the economics of poverty.

Is there a poverty trap?

Some economists propose a “poverty trap” – an economic situation in which it is nearly impossible to improve one’s situation. Others dispute the idea. Each has a model of one’s probable income next year based on this year; the two curves differ in shape. Banerjee and Duflo demonstrate that it is possible for a poverty trap to exist – but that it need not be permanent.  Building on their emerging theory of the causes of poverty traps, they predict which interventions are more likely to help people break out of the trap – and test those hypotheses in randomized controlled trials.

The policy tools of the future

Most of our current foreign aid and development policies are grounded in theories of economic behavior that were developed with very little data.  Banerjee and Duflo develop theories that can move beyond ideology – and both liberal and conservative ideologies lead to many dysfunctional policies – and abstract theories.  The general public needs to know about the existence of these scientific approaches – and to advocate for their use with our votes and our contributions.

Reading just the first chapter of Poor Economics is eye-opening; check out the website or download the free sample to a Kindle app and see for yourself.

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