Thursday, September 6, 2012

Welcome to Econ 280

Here is the first article we will discuss on Thursday the 13th.

The Economic Lives of the Poor


  1. It's obvious that so many people live their lives below the line of poverty because of a lack in education. It’s also obvious that the reason so many poor and extremely poor people are uneducated is that they don’t have adequate access to a good education. However, what isn’t obvious is that all of these poor people live their lives around receiving instant gratification. This is due to that fact that they are never going to be able to live off of more than one or two dollars per day. So, they live every day with the intention of just surviving until tomorrow. This is why there is no invested interest in saving money that could be spent today for something that might be purchased tomorrow. Instant gratification is the answer to all of the questions asked in this post such as: “Why so many kids?” and “Why do they spend their money that way?”
    The reason they have so many kids is that contraception is not available, unnecessary, impractical, or simply not worth it. People choose to have sex for pleasure or to have children, both reasons are immediately rewarding.
    People who don’t have a lot of money buy things they need in order to survive. Then once they have those things, they will spend it on things that make them happy, for example cigarettes and alcohol. This paper talked about how certain people living in poverty could spend up to 30% more of their income on food, but if they can survive on the amount of food they are currently consuming and spend that 30% on things that make them happier right now, then why wouldn’t they do it? This all comes back to education, and the fact that they don’t have the reasoning to make decisions based on logic, because their survival instincts are making them act on impulse. Poor people are making these decisions because they are uneducated and they truly believe that these are the right decisions at the time they make them.

  2. Although the market does little to increase the choices that poor and extremely poor citizens have on a daily basis, it is wrong to assume that the poor have no choice in which products they consume. Banerjee and Duflo recognize that those living off of $1 or $2 per day still exercise their right to choose: when income increases by 1%, consumption of food only increases by .66%. While the authors mention that many poor citizens spend money on alcohol, tobacco, and festivals, I don't think that is an economist's place to judge those choices as impulsive or unwise, given the vast cultural and personal differences. Although it does not appear that many of the poor maximize the utility of their food consumption by purchasing the highest calorie foods per dollar, this may be a result of imperfect information or a result of their job requiring less physical energy.

    There are very few public or private institutions that offer support to these poor and extremely poor citizens, and this exacerbates their poverty and eliminates almost all opportunities to increase their income. Many are entrepreneurs, but cannot obtain a formal loan (or afford an informal loan) that will help them expand their business to a point where they begin to benefit from increasing returns to scale. Lack of financial backing also fails to incentivize the poor to invest in riskier business techniques or products that may have higher returns in the long run. This information suggests that many of the poor could greatly benefit from relatively small microfinance loans. Additionally, because few have access to a savings account, it is both physically and psychologically difficult to save money over time.

    Banerjee and Duflo comment that there seems to be a "reluctance of poor people to commit themselves psychologically to a project of making more money." However, before we rashly judge the poor for not being "better" at saving or "more dedicated" to pulling their families out of poverty, it is necessary to recognize the cultural and institutional constraints that they face. While they have some choice as consumers, their choices are fewer and different than ours. Investing in institutions that can help these people better manage their finances is much more like to result in reducing the number of poor citizens, rather than imposing our consumption values upon them.

  3. The Economic LIves of the Poor provides valuable insight into the lives of the poor and how they spend their money. While $1 a day stands out as a widely recognized poverty line, the article does a good job of quantifying what that amount really means for the world's poor. Banerjee and Duflo illuminate a key point in the new view of economic development; although the poor and extremely poor in this study live on $1 or $2 per day they still have economic choices and value freedom. Poor people in the study indicate that they value having the freedom to participate in indigenous festivals and other forms of entertainment or alcohol and tobacco over additional food.

    Moving beyond strict forms of economic measurement in terms of income in dollars per day the paper raises important issues concerning the role of institutions. The poor in the 13 counties typically lack viable options for saving or insurance, two ways to alleviate poverty. The high rate of enrollment in the "work for food" safety net in India highlights the role political institutions could play in fostering finical institutions as well as social stability that could be valued.

    Knowing more about the lives of the poor further shows there is not one solution to worldwide poverty. An issue the poor face outside of poverty is the pressure of "developed" influences trying to impose policy prescriptions without fully understanding the needs and costs of those living in poverty. It is easy for the developed world to say that every child should be in school. This normative economic view does not take into account the opportunity cost of that child going to school. While the article shows poor households spend about 2% of their income on education, probably buying uniforms for public schools, there is also the cost that the child then cannot stay at home and work to help out the parents, who probably have more than one job. Social institutions like schooling and health programs have long term benefits but when engaging in normative development economics immediate opportunity costs must also be taken into account. Evidence from the paper concerning foregoing more food today for entertainment tomorrow suggests that the poor understand the concept of opportunity cost and also enjoy having the freedom of how to allocate their resources, however limited they may be.

  4. Though it may not have focused on the topic verbatim, this article does a great job of demonstrating the cyclical nature of poverty. The various facets of the lives of the poor discussed in the article (such as living arrangements, consumption patterns, education, health, occupational decisions, financial opportunities, and others) all interact and affect each other in hugely significant ways. Meaning, as a simplified example, we can see that health affects ability to work and secure revenue, which is also affected by financial opportunities for loans or savings, and these determinants of income in turn affect consumptions patterns, which then once again go back to affecting nutrition and health. The hardships and difficulties faced by the poor in each of these areas and the connections between them provide for very difficult paths to economic improvement.

    Of these topics, the most interesting to me was the section about how the majority of the poor and extremely poor have multiple occupations. The statistic that the median family in the survey has three working members and seven occupations is incredible. The idea that they could be trading off opportunities to have higher incomes by choosing to work a variety of jobs rather than specializing in one field was particularly fascinating. On the one hand, it is definitely logical to focus in on one occupation and to build and advance in that field, but at the same time it is difficult to fault them for taking any and all revenue that they can. When the amount of income they work with on a daily basis is so incredibly low, they cannot risk losing a possible source of revenue by investing now and attempting to expand in hopes of future returns. Also, the act of investing in itself is difficult due to the lack of formal sources of credit, options for saving, and insurance options. It’s a strange dichotomy that doesn’t have a simple solution.

    Finally, like a few others have mentioned, I was a bit bothered by some of the sections in the article and the way that the authors seemed to be passing judgment on the consumption decisions of the poor. The section about festival attendance also jumped out at me. For them to say that “it is hard to escape the conclusion that the poor do see themselves as having a significant amount of choice” seemed a little bold to me. A population with “significant amount of choice” is certainly not how we have characterized the poor thus far in our course. In fact it is almost the exact opposite. The freedom to make choices is something that is hindered by poverty, and I don’t think it’s fair for the authors to say that since some of the extremely poor participants in the study chose to go to a festival that they have many options. The attendance of weddings and festivals is a form of social participation, and this is a vital part of a worthwhile human life!

  5. I tend to agree that education is the best way to turn around an impoverished community, but I disagree with the statement that, "they are poor because they are uneducated." The reason many of these families are poor is because they were born into poverty. Furthermore, they were born into poverty in a country or region with little to no upward mobility. The number one factor that determines your wealth and success is the environment you were born into and your parents wealth and success.

    In terms of over-population, I think it is fair to say that the absolutely impoverished people have a median of 6 children because they lack education. It is true that they are not privy to contraceptives and sexual education. Although, I think it should be noted that it is significantly less expensive, to have a child when you are living in absolute poverty than in a middle-class American family. Studies approximate that it cost the average middle class American family 200,00-500,000 dollars to raise a child (a high percentage of their wealth) while it would probably cost a family in absolute poverty $100-$400 dollars (a lower percentage of their wealth) to raise a child. That is not to say that the Kenyans in absolute poverty are thinking about these approximate statistics when they are family planning but Americans and other prosperous nations certainly are running the statistics, which leads to them having less children.

    It is unfair to label the individuals studied as "undisciplined" or "easily susceptible to temptation". The Kenyans are less educated than most Americans and the people doing this study, so it is easy to say that they do not know what is best for them. It is easy to say that impoverished people should be using their dollar a day for more calories and less immediate instant gratification. I agree that they are unaware of our business sense but we are also unaware of their instinctual sense. Even with our education, we might be searching for some immediate affordable satisfaction if we had to live off $1 a day and with the fear of our lives ending.

    Not to compare impoverished people to an animal, but if you set a plate of food in front of a dog that hasn't eaten in a week, he is going to eat the whole plate of food. We wouldn't call the dog dumb or uneducated because he isn't saving the food. For all that dog knows that food won't be there tomorrow but it is there now. The same is true of the impoverished individuals when it comes to investment versus immediate satisfactions. There isn't even a place for them to save their money and if there was a place to save money or seed for later it might get stolen or they might unexpectedly die.

    These reasons are partially why the people studied do not show a high level of stress. They consume what they can today and worry about tomorrow, tomorrow. Although, I agree it would be smart to save for the long-run I do not think their instincts or circumstances allow for saving. While it may be difficult for us to understand some of their bizarre spending habits we must remember that they are faced with a different set of circumstances than we could ever imagine. We should help these countries with programs and institutions that could alter their circumstances or opportunities without totally belittling their current system of spending.

  6. Abhijit V. Banerjee and Esther Duflo’s “The Economic Lives of the Poor” made it clear that the status of those living below the poverty line differ greatly among countries while still sharing common concerns. Their analysis raises the question: what can be done to improve the productivity and, in turn, well-being of this demographic? Through the article it became clear that people living below the poverty line have the ability to make economic and personal decisions, despite their limited means. I believe we need to capitalize on this ability and instruct such societies on how to make wise and informed decision with that which they do have. This will increase their productivity thus enhancing their well being.

    It is simply inefficient to work multiple jobs without specified skills, spend money on entertainment and sugar as opposed to beneficial calories and necessities, neglect to save money and unproductively use their scarce resources. However, this being said, these people are not without hope of a satisfied life. Given the existence of government provisions, education, health care and job opportunities it is certainly possible to reconstruct these institutions in a way in which everyone can benefit. Teachers and doctors need to show up to work, there needs to be encouragement to acquire job specialization and those living below the poverty line must grasp the concept of wisely distributing their income amongst necessities. If this were accomplished, drastic progression toward civilized development would be inevitable in poor communities. The only thing that stands in our way is the question: how can we get this ideal ball rolling?

  7. "The Economic Lives of the Poor" clearly points out the similar problems that people living in extreme poverty are experiencing. Lack of work specialization, bad spending habits, temporary migration, lack of saving, and poor education all clearly create a cycle of poverty which is extremely difficult to escape. In my opinion the responsibility to eradicate poverty falls on the governments of these developing countries.

    The government generally controls the single most important thing for these people and that is education. While extremely poor people have access to public schools it is clear that the schooling is not sufficient to improve these societies'. The fact that teachers frequently are absent from school without consequence shows that the government is doing a horrible job regulating education. Education is the best tool that can be used to eradicate poverty. It would create more effective long-lasting businesses, better spending and saving habits, and better self-esteem. If these governments intervened and committed to improving the public school system, a large difference could be made.

    A similar argument against these governments can be made in terms of health care. Since these countries' generally have much higher vulnerability to malnourishment, child mortality and disease, there needs to be effective public health care systems in place to come to the rescue. Health care workers often don't show up to work like public school teachers, causing people to seek out private medical help. Unfortunately, it is all too common for these private health centers to give poor medical advice or overprescribe patients. If the government stepped in here as well and committed to improving the public health care facilities, it could help to not only prevent disease, but also give more people the opportunity to work and earn a living rather than being sick or dying.

    To me it is clear that in order for these countries to improve the standard of living, the governments must intervene and improve public education, and public health care. These improvements will have a snowball effect on the rest of the society and will help to mitigate the poverty problem.

  8. This paper makes it apparent that subject of the economic lives of the poor is a multi-faceted issue that goes beyond mere economic calculations. While the choices of the poor are extremely limited by their income and infrastructural circumstance, the paper makes apparent that there are some options to be pursued by individual households that could lead to long-term escape from poverty. The inefficient allocation of resources is a consistent theme throughout the paper, which I found to be alarming. As in the example of the Kenyan farmers at the end of the paper, it appears that even when provided the proper resources to increase production and profitability long-term, too often the poor trade off future payoffs for present consumption. Much of the paper deals with this idea that the better life choices are open to the poor, but they are not taking advantage of them.
    While I agree with the solutions the paper presents in terms of healthier food options that are also cheaper as well as improved farming techniques, I believe that it imposed Western ideals onto cultures that obviously do not share the same background. For example, a large part of the beginning of the paper focuses on the low expenditure of the poor on food even though they feasibly have enough money to purchase a higher quantity of more nutritious food staples such as millet. Instead, they decide to spend it on alcohol, tobacco, weddings, festivals, and other miscellaneous expenditures. It seems that poor nutrition could be overcome, but people make other choices as to how they want to spend their money. This decision is entirely opposite of how developed countries would have poor people act. Yet, maybe this expenditure on seemingly frivolous items is one of the reasons even the extremely poor do no report relatively low levels of happiness. They have different moral values, social constructs, and cultural backgrounds that govern how they believe they should spend their money. Development economics must work within the framework of a society’s social paradigms as well as its economic markets; therefore, sometimes the most logical solution to poverty might not be the right answer for a given group of people.

  9. "The Economic Lives of the Poor" certainly did an excellent job of elaborating on the cyclical problems associated with the world's poor and extremely poor. Perhaps the most interesting facet of this article was, to me, the relationship and correlation between many of the issues faced by this population. While I've never assumed that "curing" poverty would be an easy task, reading the various social, political, and cultural problems faced by the poor brought into sharp relief just how vast the economic task of development truly is. Understanding how a lack of opportunity for formal loans and an apathy towards saving contributes to the almost nonexistent investment in large-scale entrepreneurship among the poor is just one example of the vicious cycle of poverty. The fact that so many problems associated with poverty are derived from other issues reinforces the idea that helping people out of poverty needs to be a multi-pronged approach.

    The paper made several well thought out arguments, such as providing a voucher system for fertilizer to be used by poor farmers, or that the usage of private health care clinics depends on the absent rate of public facilities in the area. I came away from this article feeling that in order to exact real change among the poor and extremely poor, both institutional and cultural or social changes need to take place. The governments in under-developed countries can fight to elicit change in the education systems, health care branches, and financial institutions, all of which help to contribute to problems among the impoverished. At the same time, it is apparent that many of the problems of poverty come from the poor themselves - and by educating people on the importance of school, taking care of their health, the benefits of specialization or investment in entrepreneurship, they can be encouraged to utilize or fight to improve the institutions already in place.

  10. Often it seems like the lives of those in extreme poverty is presented as a constant struggle between mere survival and death, but "The Economic Lives of the Poor" presents are more nuanced examination of the poor and the decisions they face. A good example of what in particular I found surprising was the amount of money spent on food by those in extreme poverty. My assumption had been that nearly all of a family’s budget would be devoted to put food on the table (perhaps a poor choice of words since many do not have tables), but instead sustenance account for only half to about two-thirds of their total budgets. In addition increases in earning more closely correlated with purchasing of more expansive food rather than buy more of cheaper food. This seems to lead to a very interesting question that if malnutrition and its associated health issues are a pressing issue among the very poor why are not all of their resources devoted to ameliorating the problem.

    Another element of the paper that I have trouble processing fully is the wide range in ownership of certain items such as televisions and radios. Its seems like a completely different experience leaving in extreme poverty in Nicaragua were almost have own a television while no one does in Udaipur. I do not mean this as it would be easier to be poor in one or the other. Rather what purpose does the television serve in the household is it an escape from the impoverished situation or does it seems as a way to try to imitate those of higher incomes. That is to say is watching television and being aware of what is going on in the media a necessary part of being involve or embedded in society, just as attending festivals may be in India and other countries where television ownership is much lower.

  11. At first glance, Banjerjee and Duflo's "The Economic Lives of the Poor" paints a gloomy picture of the tribulations faced by the "extremely poor" around the globe. Many readers would sympathize with the challenges of overcoming poverty in developing nations such as India, Nicaragua and a host of other poor countries. One might even label the US's poverty epidemic as luxurious and worlds apart (both figuratively and physically) from the epidemic that exists globally.

    However, on closer inspection, many of the decisions and problems that these impoverished families face have become prevalent (to a lesser extent) in a now economically stagnant US.

    The poor in developing nations and the US utilize economies of scale by living under a single roof with several, (often a significant amount) of relatives- both older and younger. While less ingrained in US culture, the multi-generational household is becoming increasingly present in US society- there is enough of a trend that residential and multi-family developers are redesigning housing communities to accommodate larger families.
    The authors appear to covertly criticize impoverished individuals for overspending on discretionary items and ultimately failing to save money. However, this misappropriation of funds on commons vices (alcohol, tobacco) is not foreign to the impoverished in the US. Cyclical poverty in the US often results from recurring poor saving habits.
    The authors make a point to demonstrate that not all the world's poor have homogenous characteristics. They note that poor men in Mexico and South Africa rarely own land and tend not to have agricultural-based careers as opposed to the land owning, farmers of Peru. Is this not a similar dichotomy between the metropolitan sprawls of US coastlines and the interior?

    Clearly the purpose of this paper was not to reveal these similarities. Nonetheless, it is interesting to compare similar domestic trends, and it comforting to see that maybe the world isn't so different after all.

  12. Tying into this year's theme of the good life and happiness, I think Banerjee and Duflo make an interesting point that while the poor feel poor, their measure of happiness is not particularly low. Happiness is relative, and can only be based off of what one knows. It isn't because they don't own radios or TVs, since they do in fact spend very little on forms of entertainment. But that the poor that were surveyed cited health problems, lack of food, and death as the strongest causes of stress and unhappiness. The lack of food and malnutrition appears to be the biggest problem with the poor and extremely poor, as it was historically the definition of a poor person: someone without enough to eat. But why is it then that when given an increase in income, it doesn't all go towards food? And when there is an increase in income, it isn't going towards the best "bang for their buck".

    The lack of education that the poor face certainly is a contributing factor to this. For example, when given a variety of grains to purchase, the poor in India aren't going to inherently know that millet is the best to buy in terms of cost per calorie. But then again who is around to teach them about this kind of stuff when education in impoverished areas is as bad as it is? Public schools are often dysfunctional due to lack of teacher attendance and qualifications. A poor education is one of the key determinants in cyclical poverty, as it doesn't give children the tools to escape the fate and environment that they were born into. It also certainly doesn't help that some parents have to take their children out of school in times of economic stress, as a way of insurance.

    Banerjee and Duflo highlight the significance that access to insurance, credit, and better education would make on the lives of the poor. Better education would/could lead to specialization in certain entrepreneurial endeavors; access to formal credit could give them the capital that would enable their business to make a profit; and formal insurance would not only help health, but also help protect from any speed bumps that might otherwise cripple an entire family.

  13. Abhijit V. Banerjee and Esther Duflo’s “The Economic Lives of the Poor” provides a striking insight into the lives of those often neglected by society.
    The gap between the rich and the poor has significantly widened over time as technology continues to evolve. However, it is interesting to note that no matter their level of poverty people still spent a proportion of their money on luxuries such as alcohol, tobacco and festivals. It begs attention to the notion that humans seek to do more than merely exist. On the other hand, is there a way to educate these people living at or below the poverty line to better spend their money on necessities first? “The Economic Lives of the Poor” notes that “the poor spend almost 10 percent of their food budget on the category “sugar, salt and other processed foods.” None of which provide sufficient nutritional value especially to those who are not receiving these nutrients elsewhere.
    It was also interesting to note that even with the small budget that those on a $1 or $2 a day are, some still manage to send their children to private schools when public schools do not give the same value of education offered elsewhere. Considering that "the typical extremely poor family tends to be rather large" it is surprising that parents would put their earnings toward an institution that would not yield an immediate return such as in their enterprises and multiple occupations. These multiple occupations that the poor hold are often temporary and not specialized. If the poor were educated in trade schools as oppose to a traditional schooling system would this diminish the problems that exist with lack of specialization?

  14. Banerjee and Duflo provide an excellent introduction to the applicability and validity of some of the most commonly held beliefs regarding the poor. They present evidence from their surveys to investigate the causes and effects of economic, social, and institutional factors on the poor and the extremely poor. However, it is difficult to comprehend the optimism the authors seem to convey regardless of the low data figures that reflect the dismal living standards. Banerjee and Duflo seem to really emphasize the capabilities of the poor (ie. entrepreneurship, consumption choices) but it is important to distinguish between realized capabilities and potential/ developing capabilities.

    It was somewhat refreshing that the authors did not focus on presenting the image of the starving poor. Instead, they explained how the poor actually live and the significance of their choices. Households tend to be very large in size, with multiple generations, in order to “spread the fixed cost of living.” A greater proportion of the population is young as compared to the old due to high fertility rates and high mortality rates. This would seem to be the most efficient use of income but at what point do the negative effects exceed the positive effects? That is, at how large of a household, or at what income will there be diminishing returns? Perhaps, consumption per capita is too low for diminishing returns to exist? I was somewhat shocked when I read that the “extremely poor do not feel an extra compulsion to purchase more calories” and instead, they dedicate a large part of their budgets to festivals. When given a choice between food and another good, a sampling of the extremely poor assume greater importance or need in the other good! I used to be very critical of the consumption decisions of the poor. In my mind, there should be a list of priorities with food, water, and shelter at the top. Even if there are other desires for material goods, all additional income should be spent on the necessities or saved or as an investment in resources. From prior exposure to Banerjee and Duflo, they actually made me revise my way of thinking because of the particular idea that the poor may not be able to conceive the concept that there is a better quality of life or even of the practicality improving for the long term. Poverty is all they have ever known and given all the potential dangers and lack of sufficient effort, they may place greater importance on immediate and short-term gratification than on any long-term goals. It is logical for me to save a certain amount of money each day so I can attend graduate school without loans because I know it is attainable, but it may not be practical for the poor because they cannot conceive of the idea of graduate school. The disparity between their level of happiness and their level of consumption demonstrates this difference in perception.

  15. This article by Banerjee and Duflo is definitely an eye-opener and provides good insight into the struggles that the truly poor of the world face. My biggest problem with the article is that it sheds light on a wide variety of issues and choices that the poor tend to make; yet it does not propose true means to fix or even slightly alleviate some of these problems.

    One of the most interesting themes to the article was the lack of savings amongst the poor. It is hard to understand why the poor are able to set aside money for their children to attend a private school when they do not have the discipline to first set aside money for such basic life needs such as food and healthcare. Given the high rate of disease in poor regions, it seems logical that a family would at least have enough set aside in order to buy meals or health care for the family's providers. In such a Darwinian environment those who are able to provide need to be able to provide at all times, and the lack of savings makes that hard. Another way to have "savings" is via forced savings by purchasing fertilizer immediately after harvest. This increases output with very little risk. It is hard to understand their reluctance even when the benefits have been made clear to them.

    A second striking issue was the lack of specialization. I understand that the family wants to maintain its nucleus and stay around its safety net (aka friends and family). However, the ability for someone (son or daughter) to learn a trade and/or make a solid living is much more likely when long-term or permanent migration is an option. Take China (or even the US during industrialization) for example: many rural people send several sons or daughters to cities in order to work in a factory or learn a trade. Often times these children are able to earn enough money that they can send some money back to their nuclear family. This can supplement those families incomes and increase the human capital of a family through the acquisition of new skills.

  16. The amount of people around the world living under a poverty line as startlingly low as $1 a day is almost uncomprehensible. In Udaipur, almost half the entire population lives under this poverty line. As the article alludes to, economic nuances such as the possible wrong classification of some households as under or over the poverty line does not change the facts of life for the poor and how they live. For me, one of the most surprising statistics of the paper is how much of the budget of the extremely poor goes toward food. I, probably naively, have always supposed that those under such crippling poverty must surely be spending all that they possibly could to feed themselves. I think it is fascinating that what the extremely poor do choose to spend their money on seems to be things that they deem extremely important for their well being and happiness. These expenditures, in fact, are perhaps just as important as physical nourishment to them. Spending on festivals, for example, represents a substantial budget expense and are vital cultural events that make up the social life of a community. This financial dedication to festivals represents a strong and important budgetary expenditure that could add greatly to the emotional well-being of a family. It is certainly not something that would be accounted for in a traditional look at poverty from the standpoint of simply calculating GDP, for instance.
    The idea of choice for the poor and extremely poor in their budgets gives me a new perspective, and shows that poor families face many of the same choices as richer ones in terms of balancing their budgets between necessary expenses and those that may nourish their well-being in other ways. However, the fact that many of these impoverished people are not getting enough to eat and that their health is suffering greatly in many instances sheds a different light on the choices they are making with their money. It is hard to imagine having a family that is admittedly not getting enough to eat, but then choosing to spend money on anything but sustenance. It is further distressing because these health problems in turn make it much more difficult for the poor to work productively as they are often bedridden or requiring medical attention, and their strength and stamina are harmed. It greatly diminishes their chances of rising in their work in any way in order to increase their salaries and be better able to provide for their families.
    To me, it seems incredible that in these conditions the levels of reported happiness amongst the extremely poor are not lower. Perhaps this is as a result of their use of budget on some of the non-food items that harm their health but feed into other non-physical aspects of their well-being. It is a difficult conundrum as what may make the extremely poor more happy could also be causing them great health issues. It seems rather impossible to choose whether happiness and poor health is more desirable than lower levels of happiness and better health.

  17. Abhijit Banerjee and Esther Duflo’s “The Economic Lives of the Poor” describes the seemingly predetermined life path of the poor and the extremely poor. There are a multitude of factors that one must take into account when attempting to rationalize the reasons for the repeated life cycle of poverty. Two of the most prevalent factors are unreliable government officials and a lack of hope for a better life.
    Unreliable government officials in areas such as healthcare and education hinder the chances of the poor and the extremely poor to achieve better lives. According to Banerjee and Duflo, “Government health care providers often illegally charge for their own services and for medicines in reality. Also…the quality of care in the public system is so low that the poor often end up visiting private providers” (Banerjee and Duflo 10). Furthermore, health providers in poorer neighborhoods are incompetent when compared to the health providers in richer neighborhoods. This leads to poorer health for the poor which ultimately increases mortality. In addition to the corruption in the health-care providers is the corruption in the education system. Banerjee and Duflo refer to public schools as “dysfunctional”, causing many parents to send their children to private schools. The low quality of the facilities in addition to the high absentee rate of the teachers in low-income countries warrant the dysfunctional label given to public schools by Banerjee and Duflo. Without a proper education system, the poor and extremely poor students have little chance of increasing their human capital, which leads to the repeated life cycle of poverty.
    The poor and extremely poor seem to lack the hope necessary to spark initiative within them to invest in or save for the future. Poor and extremely poor groups also tend to avoid specialization because they cannot raise the money for the capital equipment necessary to specialize and to spread the risk in case one job fails to produce. This fear of specialization also reflects a lack of hope. It is shown by the consumption of goods not necessary for survival, such as televisions, radios, sugar, tea, etc., that the poor have money that could be put away into savings. However, they do not save or invest for capital because of the lack of hope that they will not be able to save enough without spending the money. Banerjee and Duflo mention a “reluctance of poor people to commit themselves psychologically to a project of making more money” (24). This reluctance could very well go hand in hand with a lack of hope for the future.

  18. I believe this article provides a telling glimpse into the multifaceted problems of the poor across the world. Whether it be access to health care, education, or a job Banerjee and Duflo adequately depict the multifaceted barriers that the impoverished are faced with on a day to day basis. A major theme throughout the article seemed to be the constant struggle by the poor to invest in their future whether it be through proper nutrition, monetary savings, or building their businesses. I agree with the authors that this lack of foresight is not necessarily due to self-control issues. From the day these people were born into their unfortunate situations they have been preconditioned to act and think on a day to day basis in order to stay alive. Therefore, it appears that they are not trained to think in terms of the long run and often make decisions that will perpetuate their squalor.

    This shortsighted attitude is also a direct reflection of the lack of any financial safety net for these people. As mentioned in the article, the risks associated with committing oneself to a specialized career or investing money are very high for those in extreme poverty. It is not hard to understand the fear someone would have in pursuing an avenue that could be beneficial in the long run but potentially fatal in the short run. I believe that this instability and unpredictability in their lives is a major contributor to their poverty and something that the government fails to address by providing the appropriate safety nets. Without access to an adequate education impoverished children will never acquire the skills and knowledge necessary to improving their lives. This education will at the very least protect the poor from manipulation and provide them with the sense to recognize the detrimental long term effects of their short term decisions.

    It also appears that the poor have limited access to any formal lending institutions. This forces them to turn towards informal lenders that charge higher interest rates and leaves the impoverished vulnerable to manipulation. This is certainly the type of poverty Sen refers to as the poor's freedom to make their own decisions is restricted by their shoddy access to basic institutions. If the poor had more access to formal banks perhaps they would be more likely to save and invest their money and thus establish a legitimate business and achieve greater financial security. The article leaves no doubt that the poor are extremely hard working individuals. They are simply not working efficiently due to the lack of basic institutions, adequate education, and health complications. These health complications result from not only the failure of these governments to provide adequate health care but from the lack of knowledge about appropriate nutrition and activities detrimental to a person's health. This ignorance is another result of a poor education system and the absence of self help organizations. I truly believe that above all, providing the poor with the proper education and knowledge to protect themselves should be the foremost priority of anyone attempting to alleviate their problems. This education may show them the value of sacrificing immediate income to specialize their skills. It may increase their understanding of proper nutrition and result in better decisions in their daily diet. It would certainly make them more attuned to the injustices around them and perhaps more likely to petition their government for improvements of many sorts.

  19. This comment has been removed by the author.

  20. corrected version with better spacing:

    In the first third of their study, Banerjee and Duflo seem to view their subjects far too unrealistically. Needs, naturally, are met by economic decisions, but other factors come into play, especially in extremely poor communities where inefficient markets run rampant. Most surprising was their suggestion that families reallocate funds from festivals to food. What they seem to miss — even from the definition of festivals that they use themselves — is the cultural necessity of these events, the fundamental role that ceremonies play in the yearly lives amongst some of the world’s most poor, and the special cultural affinity that enveloped them.

    Weddings and funerals, for example, can rarely be set aside until the next year to save money. People will always fall in love and, at some point, die, regardless of their income. Religious festivals too, particularly in devout, non-Christian cultures, are as essential a part of their lives as other necessary life rituals like weddings and funerals.

    Where Banerjee and Duflo really do prove a key thesis — even if they don’t explicitly say it – is their evidence in the expansive role that undeveloped institutions have in the role of relegating poverty to its status quo. Inadequate enforcement of teacher turnout in public schools, few convenient central resources for fuel, highly inefficient markets, little insurance, and limited land rights all contribute to inexorable stagnation in development. Standard public services such as education and healthcare play a critical role in determining the sense of personal security necessary for economic development. The challenges are diverse, but all of these could be aided through competent institutions.

  21. “The Economic Lives of the Poor” does a great job at showcasing the surprising choices that those living in extreme poverty make on a day-to-day basis. I was surprised at how many of the conclusions drawn from this paper looking at extreme poor in developing countries can also be drawn when looking at the poor in developed countries. As many have pointed out, the authors seem to be making a very strong statement in condemning the poor for spending a significant portion of their income on festivals and weddings. The authors depict a world in which social networks are important as a form of insurance and as a way to gain access to credit. It would seem logical that participating in this strong community would be necessary to make sure that they can participate economically as well. Also, the extreme poor face so much uncertainty and risk it only seems natural that they place a high value on entertainment as a form of escape from the harsh reality that surrounds them. When mentioning migration, the authors even acknowledge that there are strong social networks. Sen would argue that being able to participate in society is an important functioning, so it makes sense that the poor would devote a portion of their income to festivals and weddings.

    This article also points to the need for stronger property rights for many aspects of the economic lives of the poor. As they authors said, it is important to enforce the rights of small landowners because current laws do not create the incentives to invest and take care of land. Also, the “penniless entrepreneurs” would have far more success if they could invest and grow their business, and it would probably lead to a higher level of specialization, and bring down interest rates if contracts were easier to enforce. Overall, this paper exposed the importance of institutions in the development process, both social and government. Vibrant social institutions can provide insurance and credit to the extreme poor, and many in these communities already place a high value on it. Also, less corrupt government and stronger institutions offer a path to clearer property rights and could encourage the poor to invest more in education and economic specialization.

  22. "The Economic Lives of the Poor" provides a great statistical insight to poverty. The numbers that Duflo and and Banerjee study are shockingly disturbing. I was astonished to find out that not all of their budget is spent on food. Though the great majority of poor people's income is spent on calories, I would have expected a higher share. At the same time, I was not surprised to find that a significant share is spent on alcohol and tobacco. Though I do not comprehend why the extreme poor decide to spend some of their low income on these goods; I do not understand why there are no ongoing regulations to solve this problem. I believe that reducing the consumption levels of alcohol and tobacco from the poor could lead to significant improvements in their standard of living.

    It is clear from their essay that people living under extreme poverty not only face financial challenges but also problems such as lack of infrastructure, access to credit markets and educational problems among others. With all this issues it seems logical to wonder which one is the best starting point? I believe that education my be the best stepping stone towards reducing these extreme levels of poverty. However, in order to successfully transmit ideas and knowledge to students, it is necessary high levels of productivity both from the students and teachers. With that in mind, it is important to change the nutritional habits of the extreme poor. Once that the poor have the correct nutrition, they will have the opportunity not only to fully engage with their education but also with their work. Therefore, I find the lack of government action in developing countries to promote and subsidy health nutrition offensive.

    Finally, it was interesting to find that despite of the startling living conditions of the poor, the reported level of happiness are not that low. It would be interesting to study the Living Standard Measurement Survey to analyze the surrounding questions to this one. It was proven in one study that depending on the previous questions the answer might get skewed. Yet, the fact that the levels of happiness are no extremely low raises lots of question related to the satisfaction that can be generated by having the freedom to choose. Clearly, people under extreme poverty are not restraining themselves to the most fundamental good but on the opposite allowing for miscellaneous spending.

    "The Economic Lives of the Poor" leaves no question in mind that there is still a long way to go before we can eradicate poverty. It also makes it clear that the eradication of poverty is not 100% up to the government. It will be necessary the cooperation of the poor by re-analyzing their spending and working habits in order to finish with poverty.

  23. Abhijit V. Banerjee and Esther Duflo's "Economic Lives of the Poor" brings to light many key issues if we want to shape policy to adequately alleviate poverty. Often times aid is directed at what we, as outside parties, think are the main problems. This article, however, takes a deeper look at what the lives of the poor are really like, and it has some surprising findings. Discovering what the poor spend their money on is an important finding. I was somewhat surprised to see that a higher percentage was not spent on food. However, when you take Sen's capability approach into account, it makes sense that a feeling of belonging and participating in society is highly valued, once the basic needs are covered. I find it so easy to assume that a balanced diet should be higher on the priority list than participating in festivals or weddings, but that wrongly diminishes the importance of participating fully in society and having the choice to participate as you wish. The article briefly touches on this issue when it discusses temptation. It is important to realize that just because there is a lack of resources, temptation is not fully removed from the equation. Especially concerning aid, it is important to have a full understanding of the value system and cultural aspects of poverty in any society.

    I also found education to be a common theme throughout the article. Not only public or private education for children, but education regarding rights, opportunities, and potential advancements or changes in the lifestyle of the poor. I find children's education to be a key solution for many poverty issues. Educating children is a key component of breaking the cycle of poverty, because as the article mentioned, uneducated adults have limited ability to help their children when it comes to issues in school. Spending on education is relatively non-existent, making up less than one percent of expenditures in some households. This is because the schools are often free or charge very little. However, the quality of these schools is in most cases unacceptable. Teachers are not qualified, often do not even show up because of low paychecks or no paychecks at all, and the facilities are often dilapidated and too many children are crammed in each room. This does not create an environment conducive to learning, and often primary school is the farthest children make it. On top of that, the results of various achievement/literacy tests indicate that children are not even learning. Tutoring and extra help programs seem to be rare. Proper education in primary and secondary school would give children a huge leg up as adults, because lack of education regarding opportunities and resources is really holding adults back. Many don't invest or explore options regarding money because they do not understand what they are getting themselves into. As the article states, many parents do not seem to think that the poor quality of their children's schools is cause for alarm- they don't have a full grasp on what or how much their child is learning, and they don't know how to go about changing things.

    Hopefully, this comprehensive understanding of the economic life of the poor will inform potential policy and aid in a constructive way. Having a deeper understanding of the many economic nuances of the lifestyle of the poor is essential if we want to create lasting, sustainable solutions to poverty.

  24. This comment has been removed by the author.

  25. In “Economic Lives of the Poor,” Banerjee and Duflo do a good job of encapsulating the conditions of the world’s population living under $1 or $2 a day. They explain well the limitations of the poor as well as the choices they are still able to make. What stood out to me most were the entrepreneurial systems in place in all 13 countries studied in the article. These entrepreneurial systems have been functioning for so long along with the complex private loans within families and villages that making changes for development is really difficult.

    The main reasons the poor are restricted from earning money more efficiently have to do with the inability to raise capital, absence of proper lending programs, and the lack of specialization. These issues would take significant time and money to address. First, almost all entrepreneurial enterprises are too small-scale to be efficient. The poor are unable to raise enough capital to create a profitable enterprise. For example, with a business run by one or two family members, getting enough money to buy machinery proves to be very difficult because this issue leads into the problem of lending. Most poor countries do not have formal systems of lending. The main forms are private, through family and friends, with high interest rates making borrowing more expensive. With capital being difficult to obtain, businesses do not grow quickly, giving the entrepreneurs time to do other jobs. Instead of having one efficient and productive business, many of the world’s poor have several occupations. Finally, the lack of specialization limits the poor from earning more. Short-term migration proves to be an issue in this case, because the migrants are not in an area long enough to be trained or promoted. Also, Banerjee and Duflo mention that the poor are turning down opportunities that would result in higher incomes and specialization, such as more training. However, I think that in many cases more specialized training would not be an option because current income would have to be given up for a certain amount of time before returns on the investment, which many poor families could not do.

    In the end, the last statement caught my eye, “thinking about the economic problems of life must make it harder to avoid confronting the sheer inadequacy of the standard of living faced by the extremely poor”(24). Although I understand where the sentiment is derived from, I do not think such a strong conclusion can be drawn from the two scenarios given. Just because the poor do not decide to migrate for longer periods of time or farmers choose not to use fertilizer does not mean that the poor are psychologically against earning more money.

  26. Banerjee and Duflo's "The Economic Lives of the Poor" provides a great statistical insight into the lives of the poorest people on the planet. However, I thought that most of their conclusions or inferences drawn from the statistics were flawed. As intelligent and well educated in poverty as the authors may be, I think it is impossible to draw assumptions as to how the poor should spend their money, as truly living on less than one dollar a day is incomprehensible to us. While breaking down you spending on a monthly basis can be a great way to cut back and save some money, I don't feel like it is applicable to the poor and extremely poor. They redefine living pay check to paycheck, and I think that the fact that they spend a good portion of their income on festivals and weddings and alcohol and tobacco is nothing more than an indication that these people are human, just like us.
    Most of the facts were somewhat intuitive, but a few were very surprising. For example, the fact that in India, 93.4% of children ages 6-14 are enrolled in school was shocking. I would have guessed a much smaller percentage. I think this is a promising statistic, even though the quantity of education opportunities is significantly greater than the quality of education offered. Another stat that jumped out at me was that default explained only 23 percent of interest rates charged, and the median rate of default across money lenders is just 2% in Pakistan. This is amazing, and makes me wonder if it would be more beneficial to loan these people money and teach them the basics of operating a successful business, rather than provide aid by just cutting a check to and having them spend it as they please.

  27. "The Economic Lives of the Poor" is a very informative article that provides detailed analysis of the chain of poverty that handicaps underdeveloped countries around the world. The article is strong in evidence it uses to support its less than radical claims. The article helps provide a better understanding of the lives of the poor and offers some interesting tidbits on why irrational behaviors predominate families living on under 2$ a day.

    The main ideas of the paper; that the poor act out of lack of education and lack of security are not new ideas nor are they ideas that most of the people in the class find shocking. Many educated people in the United States don't participate in Government because they don't feel that they have a food. Why would a poor illiterate farmer believe he could have an ability to pressure his government or his countrymen to change their actions. Chaos breeds chaos and when you live day by day you are forced to be quick thinking and stay in the present to get by. When you are worried about day to day survival why would you care about the longterm?

  28. This comment has been removed by the author.

  29. Banerjee and Duflo seem to do a very thorough job analyzing the multi-faceted issue of poverty. As far as I can tell, they touch upon all the major contributing factors to poverty including nutrition, health care, insurance, family size, access to capital, education, the lack of specialization, the lack of infrastructure, and even the psychology of the poor, the last of which is a topic of particular interest to me.

    Sometimes I think it is easy for people to unfairly criticize the decision-making of impoverished people. And it is true that their decision-making of the poor could certainly be more efficient. They themselves even admit that they would like to cut their expenditures in certain areas, particularly those of alcohol and tobacco. However, at the same time I think people across all socio-economic levels could probably spend their money in a more efficient manner, but the consequences are not always so severe. Furthermore, it can be easy to criticize the decision of many poor people to not save more so they might invest their money in a more beneficial manner, such as the farmers’ decision to not purchase fertilizer despite the fact that it yields on average a 100% increase in profits, or the decision to spend money on a TV or radio instead of saving it. In addition to the constraints that the economic infrastructure places on the ability to save (such as access to a bank account), there seem to be some serious psychological impediments to the poor using their income as wisely and efficiently as possible. Many alcoholics, drug addicts, and “glue-sniffers” amongst the poor cite one of the reasons they keep spending their money on these substances is because it takes away their hunger. Perhaps this removal of the perception of hunger is more satisfying than actually eating? If this were the case, then it seems reasonable for someone to make that choice. A small businessman I met in Nicaragua said that he did not have a savings account because he did not trust the banks with his money. Regardless of the fact that mistrust was most likely unfounded, it seems reasonable that he would be so skeptical in a country where it is a commonly known and accepted fact that their president was elected with the aid of voter fraud. I also think that appearance is an incredibly important value in human society, and as such I think it is reasonable that many people may choose to project an image of success that is higher than their actual level of success, which might divert money that would otherwise contribute to their well-being to things like a TV or radio that might help them to participate socially and “keep up with their neighbors” (21). I think that sometimes in our criticism of the seemingly irrational behavior amongst poor communities, we can incorrectly attribute their failures to the flaws of the individuals rather than recognize that they might simply be the flaws of human nature. Perhaps the apparent “reluctance of poor people to commit themselves psychologically to a project of making more money” is an appropriate human response to poverty, even though it may seem irrational (24).

  30. This paper makes it quite clear that the poor have dozens of significant factors working against them in life. Out of all these hardships, however, I would guess that maybe stress has the most detrimental effect on the long-term prospects of the poor. Stress can be psychologically and even physically damaging. Studies on well-off citizens in developed countries show that stress can shorten lives and diminish the current quality of life. If that's the effect on the privileged, imagine the suffering it imposes on the poor. This paper states that health concerns was the most common source of stress among the poor surveyed. The poor get sick more often and then the doctors who care for them are under-qualified or absent, a double-whammy. Health concerns could be over a family member. If some of the hypotheses on the importance of community and family tentatively voiced in this paper are true, then one sick family member would cause stress on every member of the household, increasing overall stress and decreasing each members' productivity. Health concerns would also include one's own health. If someone gets sick enough, they might wonder how long they're even going to stay alive, which certainly isn't conducive to saving up money.

    A high level of stress among the poor might also explain the need for stress-relieving goods over more practical goods such as food. Alcohol, tobacco, and entertainment might be providing that outlet for stress. But stress itself is not the problem. It's all the sources of stress that must be dealt with in order to lift the poor from their current situation. It's unclear whether improving all inadequately met needs a little bit is better than focusing on meeting one need fully, or vice versa. For example, should aid (if that's even the best vehicle for improvement) be spread evenly over education, health care, infrastructure, credit access, etc, or should all available aid be used to educate the poorest children to the highest level possible? This paper is good for a general overview of the lives of the poor in various developing countries, but it cannot answer policy questions such as this one. Its best use is as starting point for sparking more constructive questions and ideas for future study.

  31. The paper does a good job in laying out the observed facts of the lives of the poor. Striking as it is, the paper does not aim to provide solutions, but rather to describe the patterns of production and consumption of the extremely poor (living on less than $1 per day per capita) and the poor (living on less than $2 per day per capita). Banerjee and Duflo, the authors also comment in the latter part of the paper that the choices the poor have made are anomalous, an opinion which I, to some extent, do not agree with. However, the discussions of the markets, infrastructure, and the economic environment of the poor are great. They use first-hand data to provide different hypotheses, which would be of great use for those who try to find solutions to extreme poverty.
    To my first point, the writers spend a significant of time asking and trying to answer the question why the poor don’t eat more, because they seem to have the money to do so, plus it looks like that eating more will automatically alleviate the multiple difficulties they face, including poor health and low productivity. However, one who has never experienced the specific poorest condition himself doesn’t have the righteousness to make judgement about whether the choices of the poor are rational or not. Because one never know what other factors are included in the strenuous lives of the poor, be it social, environmental, or religious. As a human, no matter how poor they are, they need entertainment and things that make them happy, because those things are their spiritual food and nutrition. For example, the fact that they are spending money on alcohol and tobacco, which costs them 1% to 8% of the total budget, may suggest that they need them to release stress. It’s quite reasonable considering the amount of stress they live in. And spending on more costly calories like sugar and other processed food may give them more joy in consuming the goods if they taste better. In all, the poor do have the choices to consume whatever they choose to, a thought that surprises a lot of people.
    On another note, the article reveals and discusses the pressing need for education, health, access to credit and so on of the poor. It makes me wonder how the big number of international aid has helped those people in poverty. I remember from some economics paper I read previously that a good portion of the aid was not very helpful in alleviating poverty across countries, because what might work in one country often doesn’t work in another due to cultural or environmental difference. This finding makes me wonder how we can use every dollar of international aid as efficient as possible. I’m sure the solution is up for grab for long for economics and other social scientists. But I think that one important point we cannot miss is that, during the battle of combating poverty, we should look for and make use of the specific advantages of the poor, and those advantages are very likely to vary across countries and regions.

    -- Christy Cui