Monday, March 4, 2013

Review of book Poor Economics

I just finished Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty

I actually learned a lot about all of us because the Poor aren't very different from the rest of us. Those of us who aren't poor don't have to think about things that the poor do have to think about. Things like chlorinating their water to keep from getting water borne illness or getting enough nutrition because their food is not fortified off the shelf. In both these cases the rich have running water that is safe to drink and our food often is already fortified with nutrition.

The book was based on a large number of randomized control trials (RCTs) around key questions.

Food- As people get richer, they don't eat more calories or heathier diets, they eat yummier diets.

Education- People will get educated and their children educated when they see a clear economic benefit.

Savings - Banks can't afford the paperwork on accounts so small, so when technology lets the administration costs come down, then banks will be able to offer accounts to the poor. Currently the poor save by building their own house brick by brick.

Loans - To spite the excitement around microcredit, the admin costs around giving out loans is very costly which is why the microcredt groups use small groups which meet every week and repay their loan at the meeting. The loans are too small to do anything really risky and the small group would discourage anything risky. Entrepreneurship - As stated above, anyone who has a brilliant business idea usually can't get a loan. Most of the businesses of the poor are copy cats of other businesses. The people running them don't want to run them and only run them because they can't get another job. They scrape by just barely surviving. Crossing the boundary between subsistence and growth is often too hard.

It's main points where that programs put out to help the poor suffer from the 3 i's: Ideological, Ignorance, and Inertia.

Governments and NGO's create programs based on their own Ideological sometimes with no evidence that their theories will work. Then there's ignorance of the program or how to make it work. Then there's Inertia which keeps poorly created programs working or working incorrectly.

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