Book Review: Poor Economics

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It’s not easy being poor.

I’ve taken some classes around poverty alleviation and a question I came into this book hoping to keep exploring is: Why aren’t the ways we approach the poor working (or well as it should appear)? How can we think about them differently and learn more about the way they live? I really enjoyed this book as it did just that, and I am impressed with how much experiments and studies that the authors were able to point to. I liked that the book explored both sides of the argument, and although at some parts it was a bit hard following their train of thought, it did well with simplifying it as much as possible, while showing why these simple topics are much more complex than they seem. You might not agree with their take on how to change the way we approach poverty, but it does a great job in pointing to its complexity and the many folds of it. With that expectation that this isn’t the holy grail to solve the problem, I rated it a 5/5.

The approaches to the solution of poverty can be thought about from two competing thoughts—demand side or supply side. Sachs is a proponent of supply; he believes that the poor are stuck in a poverty trap and need an extra “push” to get out of it, so it is most important to provide the supply for food, schools, etc. Easterly, on the other hand, believes government should not intervene and that market demand will naturally come about.

The first part of the book looks into some core areas around the poor on an individual basis. From food to healthcare to education to fertility, the authors quickly show that providing the supply for these do not solve the problem. Healthcare is the most perplexing one as providing access and even free health care does not entice the poor to take advantage of it. In the case of schooling, it doesn’t matter if children are there and they aren’t learning anything. Much of this boils down to a lack of good information, a deep mistrust in the system, and a need to “do things for the now in order to survive”. On the other hand, the conditions for a market to emerge is not always present so some compromise is necessary.

The second half of the book discusses how the poor interacts with institutions. A core point here is that in First World countries, actions are subtly guided towards what is right or even automatically chosen for us. One example is the way Social Security and retirement accounts are automatically set up; for the poor, not only do they have to actively make that decision to save, but they are also charged interest rates. A topic that I have always found fascinating is microfinance, which was a big topic in the book. There is evidence that it works (better than using traditional moneylenders), but with limitations. Some that the book surfaces include the rigidness of loan collection, the fact that ‘risk taking’ and entrepreneurship on a business really doesn’t carry the same positive spirit we think of, and the loan amounts are not big enough to finance a major business. I wonder how much is applicable to Kiva. From what I understand of it, if it is financed in a way where the risk from the loaner is not high (individuals can make contributions of $25), it can both increase the flexibility of the collection process and allow large loan requests. Kiva’s website says that 97% of loans are repaid which makes me think that admin costs are probably high because there is a big vetting process. But it seems like their method of microloans solve the problem of major risk for the lender.

The authors conclude that change needs to be made from both the top and from the bottom in collaborative fashion. I’m not going to go into specific solutions, but in a broad sense, our solutions should be built in a manner that uses a credible source to inform the poor, provide them with an incentive and make it easy to choose the right decision, and make incremental changes to accountability in villages.

All in all, this book captured at an aggregate the many things we find so normal but play out entirely different for the poor. I’m excited to actually look into these people—not treat them as just a statistic or an experiment— but to dig deep into an individual’s life, and the interactions they make and the things they do.

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