Poor Economics

Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty (2011) by Abhijit Banerjee and Esther Duflo is an absolutely superb book about rethinking ways to improve the lives of the bottom billion. The books premise is that ideas for helping the poor should be tested empirically rather than asserting their efficacy based on ideological preferences. The use of randomised trials for evaluating aid programs is put forward.

The book is divided into two parts, the first looking at the private lives of the poor and the second at institutions in poor countries.

The first section has chapters looking at experiments at what happens when really poor people get more money and how and what they spend it on. The book looks at whether there is a nutrition based poverty trap. Health is then looked at and questions of whether free mosquito nets work better than paid for ones are examined. The way the poor use health services is also investigated.

The authors contrast the top down supply/demand side attitudes toward aid championed by William Easterly and Jeffrey Sachs against seeing what actually works on a case by case basis. It’s an incredibly refreshing approach to economics that contrasts the blog wars style of Keynes vs Hayek that so much economics appears to be driven by. The idea that economics may not be like physics with fundamental rules from which results can be calculated is a great breath of fresh air.

The second section on institutions looks at why and how in specific circumstances institutions in poor countries fail. Insurance for the poor is looked at. There is a long section on micro-credit that looks at how effective it has been. The way the poor want secure, salaried jobs is examined. Saving by the poor is also studied. Oddly the work of Hernando De Soto and his study of the importance of good land title is not mentioned in this section.

The book concludes by stating that carefully studying programs on a case by case basis is critical. The marginal effects of changes to help the poorest billions should always be looked at. The book has a conclusion without having a conclusion. There is no magic bullet to alleviate poverty. The program put forward by the authors though, that careful study of each program should be carefully and empirically examined is surely a wise one.

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