Money & economics

Poor Economics

Abhijit V. Banerjee and Esther Duflo

A Radical Rethinking of the Way to Fight Global Poverty

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  • 11 key ideas
  • Text
  • Published 2011

Introduction

Abhijit Banerjee and Esther Duflo, economists at MIT, spent about fifteen years studying how the poorest people in the world actually live: what they eat and buy, how they deal with health, schooling and family size, and how they borrow, save, handle risk, run small businesses and deal with their governments. They argue that the fight against poverty has too often rested on clichés and grand theories, and that progress comes from asking concrete questions and testing the answers, often with randomized controlled trials. Throughout, they treat the poor as people making reasoned choices under hard conditions, and show how missing information, small costs and the lack of supports that richer people take for granted shape those choices.

After a foreword and an opening chapter, “Think Again, Again,” the book has two parts. Part One, Private Lives, covers food, health, education and family. Part Two, Institutions, covers risk and insurance, lending and microcredit, saving, small businesses and jobs, and politics and policy. A short closing chapter, “In Place of a Sweeping Conclusion,” draws five lessons. The ideas below follow that order.

Note: this book is from 2011. The findings are those of the authors and of the studies they describe, with the places and years they give. Some have been studied further since. On microcredit, six randomized evaluations in different countries, published together in 2015, found modestly positive but not transformative effects, close to the book's own conclusion.

  1. 1Banerjee and Duflo argue that the poor are thinking people, not cartoon characters, and that the big debate about aid should give way to concrete questions tested in the field
  2. 2The authors find that most poor adults are not caught in a hunger trap, and that better nutrition pays most for unborn babies and young children
  3. 3The authors show that the poor spend a lot on health, but often on costly cures from untrained providers rather than on cheap prevention
  4. 4The authors argue that weakly held beliefs and the habit of putting things off explain much of the underuse of prevention, so small incentives and defaults can do a lot
  5. 5The authors argue that schools in poor countries often serve a small elite and expect too little of most children, and that teaching children at their own level works
  6. 6The authors find that family size depends more on what parents want and need than on access to contraception, and that children often serve as their parents' old-age security
  7. 7The authors describe the poor as “barefoot hedge-fund managers” who carry huge risks with little protection, and explain why they rarely buy insurance
  8. 8The authors argue that microcredit is an impressive way of lending to the poor at reasonable rates, but its measured effects are modest and it is no miracle
  9. 9The authors find that the poor save in many clever ways but face higher barriers and stronger temptations, so commitment tools and a little hope make a big difference
  10. 10The authors argue that most businesses of the poor are a way to buy a job rather than a calling, and that steady jobs may matter more for leaving poverty
  11. 11The authors argue that bad politics does not doom poor countries: careful changes at the margin, and avoiding ideology, ignorance and inertia, can start a quiet revolution

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Poor Economics: summary | Daridanesh