I found Banerjee and Duflo’s article to be shocking for many reasons. I was both positively and negatively surprised throughout the paper. It is shocking that there are so many people living on such little income, but was positively shocked by the commendable innovation of these poor and extremely poor people.
The sheer number of people living on $1 or $2 a day is very depressing and seems like an almost hopeless situation in the world. Although it seems that these extremely poor people have choices in their consumption and labor, these choices in comparison to those in wealthier countries is quite limited. It is amazing what these extremely poor people make of their situations, but we cannot ignore the fact that they are essentially starving and unhealthy to most Americans standards.
The authors cite quite a few aspects in the lives of the poor. The authors reveal that while their situations are limited, these people do make many choices (wise or not) in their everyday lives. What I truly feel is that while the poor make choices, they really do not have a choice. It isn’t fair to criticize the poor for not saving, when they are barely making enough money to provide the basic needs. It is impossible to criticize the poor for not encouraging their children to go to school, when they could double their income if their children when to work. We say that specialization is important and that these people could be more efficient if they specialize, but the poor often do not have the capital or time to specialize.
We then see in the article that there are some things that the poor can do to improve their situation but don’t because they prefer not to rather than are unable to. The authors highlight that the poor spend a portion of their dollar a day on tobacco and alcohol. I quickly judged this and looked down upon the people who did this. My thoughts were- how could you possibly think about tobacco and alcohol when you probably do not have enough food or clean water? It is easy to get caught up in what the poor are doing wrong- how can they complain that they aren’t saving when they are buying sugar, tea, and snacks? When I take a step back and sit with my thoughts, I quickly refrain from judgment. Just because these people were not born into the fortunate situation that I was, why should I judge them for acting like humans. Just because my parents have allowed me to go to college and have given me an allowance much greater than one to two dollars a day doesn’t mean that I am allowed to overindulge in sweets or drink alcohol on the weekends and the poor are not. I am lucky enough that when I buy coffee in the morning, I am not taking away from the food I will consume that day, but that does not give me the right to make more choices than a poor person in a poor part of the world- I am afforded more choice in my life, but not more judgment free choice. (I am not sure if that makes a lot of sense). I am afforded more choices, so I should look at myself as fortunate and not at the extremely poor person as incorrect or wrong for their choices. This paper made me realize that it is just as wrong for me to buy a pack of cigarettes as it is for a poor person in India. I can still have an opinion on what the poor do, but I must place the judgment equally on negative behavior for those in HIC as I do those in LIC. So I do question why these extremely poor people would “waste” money on tobacco and alcohol because I do not understand why anyone would waste a significant portion of their income on tobacco and alcohol.
Banerjee and Duflo have helped me understand that limitations placed everyday on the poor and have also given me perspective on how to view the few “choices” that the poor have in their daily life.
This article was very eye opening for me. I admit that I had many of the same feelings as Samantha as I read through it but looking back I realize that that was my quick judgment coming through and thinking through it I fully understood the spending on alcohol and other treats. I thought that this sentiment was very similar to an idea discussed in the Adam Smith: Behavioral Economist paper from Econ 398. In the Theory of Moral Sentiments Smith described how he believed that humans sympathize with and respect the rich and famous while we tend to despise and neglect the poor. He wrote that this is the “great and most universal cause of the corruption of our moral sentiments”. We don’t think anything of rich and famous people spending absurd amounts of money on partying and other forms of entertainment. In fact, we buy magazines and watch shows about these happenings alone. On a little smaller but still absurd scale, we spend significant money ourselves on Fancy Dress each year when we could invest it back into our university, the same way the people in the paper could be investing the money spent on entertainment back into their business. Why do we distinguish between the two decisions? According to Smith it might be because of our tendency to worship those more rich than ourselves while putting those less well off.
This article was both very saddening and enlightening. The mere thought of survival on only $1 PPP is unbelievable. I found it interesting to see both how income was made and how it was spent particularly by the extremely poor. I would have assumed previously that the marginal expenditure on food per $1 of additional income would be nearly $1 for people who are critically undernourished, disease-prone and hungry to the point of reduced physical capabilities. I was amazed when reading the part about keeping up with the neighbors and consequently ignoring proper nutrition. I had assumed that in extreme poverty, people overcame petty rivalries and insecurities like that, but I suppose the extremely poor are not so different from anyone else after all.
The lack of access to credit and particularly savings was the most interesting part of the article to me. When thinking about poverty, I had thought of and witnessed people with lack of access to nutrition, adequate housing and healthcare, but I had simply never thought about the lack of access to business resources provided by financial institutions. It made me realize the importance of aid through microfinance programs, subsidized loans and savings account access. A life without savings is a life without any reliable means for survival into old age, and that is an essential resource to keep the young from spreading themselves even thinner to take care of the elderly.
The necessity for entrepreneurship among the extremely poor was another factor of poverty I had not fully considered. It demonstrates how much potential is being wasted in these people because of a lack of education, quality healthcare and access to basic resources necessary to expand a business. If provided even a portion of the resources available to us in the developed world, many of these impoverished people might have made excellent entrepreneurs and business owners.
Banerjee and Duflo’s article gives a holistic overview in regards to the economic lives of those living on between $1-2 a day from across the world. By giving a large breadth of examples from education and healthcare to savings opportunities and micro lending, the article adequately addresses many aspects of life that may be fundamentally different for the extremely poor in underdeveloped nations.
In response to Sam’s comments above, I think there is more to the alcohol and tobacco piece that needs to be addressed. While these two components of consumption could be categorized alongside entertainment, TV, and others, it would be wrong to simplify them to that extent. These indicators may well be casual alcohol consumption and cigarette usage, but they are likely addictive behaviors, which would better explain why such a high percentage of the poor list them as expenditures. Economic literature on rational addiction and addiction discounting further explains the concept whereby alcohol and nicotine addiction leads people to discount the health and monetary benefits of quitting. So, they actually get more utility from continuing these costly and destructive behaviors. Thus, their behavior is economically rational, however counterintuitive that may be.
In better news, this literature also states how education programs, health interventions, and social support, among other factors, have the possibility to lessen addiction discounting and make people realize the true cost of alcohol and tobacco usage. The potential for education and health then ties back into Banerjee and Duflo’s article by emphasizing the lack of high-quality education and preventative and context-driven healthcare that many of these countries are experiencing. Without trained health workers that understand the biological and social factors of addiction, healthy social networks that can support people through quitting, and more, smoking and other addictive behaviors will continue to consume a large portion of people’s incomes. Additionally, if we consider the education, health, and social components of these behaviors to be mutually exclusive, we also will see no difference. While the article likely categorizes its sub-topics for the sake of simplicity, it is critical to emphasize how inextricably intertwined they of these issues are.
The point made by Banerjee and Duflo that I found most interesting in this article is that as incomes decrease from just poor to extremely poor the relative proportion of people’s income spent on food and more calories does not go up. From my perspective as a not poor person it is hard to imagine this concept. I would “rationally” think that if I had less money I would spend more money on food to survive and stave off hunger, but this is not the case when actually studying the behaviors of the poor. There are so many factors that go into a person’s decision though it is hard to say what is rational and irrational when one hasn’t experienced similar conditions. What are the costs and benefits of spending money on a festival or celebration over spending money on food? There are lots of factors to be considered. On a similar note I think it is surprising that many people wished they saved more or spent their money more wisely. For example 44% of households wished they did not spend as much money on alcohol and tobacco as they did. It sounds like it is not as easy to save as one might think, or at least not as easy when you recognize the spending problems you have, especially with addictive products such as alcohol and tobacco. Just as we discussed in class we cannot say though what is rational in a decision unless we have experienced it.
As others have already pointed out in their comments, I too found the poor's spending pattern on non-essential goods very interesting. Although this consumption could definitely be a result of addictive behavior as Kate argued, I think that such spending habits might be explained in a perfectly rational and socially understandable context. Since poor people often depend on their relatives and neighbors to borrow money, it is probably very important to keep a good relationship with them. Festivals might be the best way for the poor people to ensure good terms with these potential future lenders. Additionally, modest consumption of tobacco and alcohol might help the poor to ease their stress over their financial situation and long day of work and thus better rest.
As for why the poor households do not spend their marginal increase in income on nutrition, we can observe the similar spending pattern in US as well. When I was in POV 101, Professor Pickett told me that many poor households regard food as the most flexible part of their budget. Since they prioritize payment of fixed budgets-such as rent, utility bill, etc- they choose to forego healthy amount of nutrition intake. Additionally, it might be that those living in extreme poverty are so accustomed to constant hunger that they do not necessarily feel reason to increase food consumption with additional income.
Lastly, this article helped me better understand the difficulty in improving public service for education in developing countries. I was surprised to learn that the amount of money the poor households spend in education is insignificant not because of low enrollment rate but because most schools are funded by the national governments. Despite the relatively high enrollment rate, schools in developing countries have not been so effective precisely because of its adverse quality. My biggest question concerning this point would be how to motivate public school teachers to become better educators.
I liked HeeJu's points regarding why the impoverished would spend money on alcohol or tobacco and also not feeling the need to increase food spending when overall income goes up. She also brought up another point, one that I think is of utmost importance and that is quality of education. I don't just mean quality of public schools but also teaching people in general how to deal with low to very low incomes. I know there are many programs in place, both governmental and NGOs that help try to educate the poor or disadvantaged. They can be taught how to begin the climb out of poverty but these programs are often disjointed or simply not large enough to have an effect on an international scale. That said, it's not like I have any groundbreaking ideas as to where we could go from here, but as we learned in class on Tuesday, education and health driven reform is what leads to real results down the road.
Like several of my classmates, I was surprised by many of the findings found in Banerkee and Duflo (2006). These findings made me reflect upon life and culture in the United States. I, as others, was surprised to read that the “extremely poor” and “poor” spend the same amount of money on food. Those with a slightly higher income do not allocate more money to nutrition. While I was first surprised that only 56 to 78% of income of rural households in this study is allocated to food, I later reversed this judgment. It is easy, I think, to say that the poor should spend all the money they can on food to escape hunger. However, this is extreme. The poor and hungry must budget money, just like the rest of us. It was also surprising at first to find that 3% of income is spent on alcohol and tobacco. The poor even favor foods that contain more sugar and are processed.
I think that it is easy to paint a picture of “the poor” in our heads-one in which they work all day and have no money to spend on leisure. However, once I reconsidered these statistics, I recognized there are several similarities to life in the United States. Even those who are well off in America prefer to eat sugary fast-foods over healthy options. We, then, have no right to judge the poor for preferring these foods when we, too, choose fast foods over healthier options. The fact that 44% of respondents would like to cut alcohol and tobacco purchases shows that the poor in this sample also face temptation and give in to guilty pleasures, just like us. Though I was quick to judge these statistics at first, I now understand them more. We have many of the same preferences as those who are poor, and cannot judge them for their desires to drink alcohol or listen to music at a festival.
I do not agree with the authors’ statement that the poor, “see themselves as having a significant amount of choice” (6). Even though the poor could spend more on food, that does not mean they deliberately choose not to. Choice is being able to go to Whole Foods and pick out what you want for dinner that night from a grocery store with thousands of options. I do not think “choice” is choosing whether or not to give up a meal to attend a festival with family members. I think that this statement is ignorant and does not consider the limited options the poor have when making these “choices.”
One final note, I found it extremely interesting to compare the concept of entrepreneurship in these poor nations and in the United States. In the U.S. entrepreneurship seems like a glorified and glamorous way to “make it.” However, entrepreneurship in poor communities is a necessity given the small scale of business and industry. Entrepreneurship is not becoming a CEO, it is selling dosas in the morning and fruit in the afternoon. It is about adaptation and improvising in order to survive the next day. Again, I found this comparison very telling of the sometimes limited and skewed views we adopt in the U.S.
As many have already said, I am very surprised about the choices by those in poverty to purchase alcohol, tobacco, and entertainment in these countries when the body mass index of most of these people is below the cutoff for being underweight. Their poor food choice as well is startling because there are healthier options for less money and obviously better value. The amount of disease and sickness would lessen, but I’m not sure these people appreciate the relation. They already believe there are going to get really sick no matter what for a certain period of time every year because it has been so common for so long. Another area of concern has to be education. The teachers either do not show up or are not qualified. In my opinion, education is the most important part in improving a country’s economic development. It has affects on almost all other aspects of life. An improvement in the education systems would be an enormous step for some of these impoverished nations.
One aspect of the report I found interesting was the vast difference in certain physical infrastructures of countries, while they all have decently similar percentages of citizens in poverty. 99% of those in the survey data in Mexico have electricity, while it’s only 1.3% in Tanzania. In some countries, up to 38% have tap water, while in several countries that number is below 5%. In Nicaragua, latrines are 100% available and that number is 0% in Udaipur, India. Yes, usually access to tap water and electricity is greater in urban areas. But, I wonder if there are other reasons for such a large gap in infrastructure.
The limited amount of data, and consistent data across countries, struck me as a huge hindrance to the study of developmental economics. The first several pages of this article talked about how surveys in some country didn’t ask this, and others didn’t and how we can’t compare one things to another because we don’t have the data. I would be interested to see what would change in this discipline with greater resources dedicated to finding more and better information and data about the very people discussed in this article.
Outside of that, something that also struck me was the conversation about the land owners and the lack of enforcement of titles. The author pointed out that many of these poor families have little incentive to use the land in the most efficient way because they are “agents rather than owners.” The example he gave was that leaving land fallow increases its productivity but it also increases the risk of someone seizing the land. The other main point the author discussed was the time that the poor had to dedicate to defending their own land. There is no legal recourse for them because they don’t have a title or deed for the land.
A more organized and official way of documenting who owns what land, and a government presence to enforce it, would be a tremendous step into helping the impoverished in these countries. Surely it wouldn’t fix everything, but being able to mortgage land, having an incentive to use it more efficiently and not wasting time frivolously defending it would no doubt be beneficial to everyone.
I appreciated how Banerjee and Duflo took a microeconomic approach to looking at poverty in developing countries. By examining the behaviors of the poor, I felt like I gained a sense of their values and how these may be similar or dissimilar to the values of a rich person. One way of deducing what the poor value is by looking at where they spend the little money that they have. As many people in the class have pointed out, this research shows that the poor spent money on things we might not consider necessities, like festivals, alcohol, or television. I think the point here is that poor people get bored too. Perhaps they value happiness as much as they value education or health. It’s easy to say as an outsider who isn’t poor that the poor people in a developing country would be making a much better investment by spending their money on their dosa business or spending the money to send their child to private school. However, we cannot term their choices as irrational because we are not living on $1 a day- something we briefly talked about the first day of class. A person in a developing country also faces obstacles in infrastructure that seem to encourage what we may call “irrational decisions” on their part. But I think we have to consider the question of would anyone who’s “rational” invest the little money they have in health care if it turns out that the so-called doctors is not qualified at all? No, because that would be irrational. This highlights an issue that poor people in developing countries are accustomed to not being able to trust anyone. Without trust, it would be irrational to save your money in an unreliable bank, pay for private school with an absentee teacher, or invest in health care when the doctors are not qualified. I think the interesting thing that Duflo and Banerjee are pointing out here is that when the poor in developing countries do not have adequate infrastructure in place they may be making the more rational choice in choosing to be happy in spite of their circumstances, like buying sugar instead of rice. It is ultimately more irrational to save up your money to pay for healthcare from a fake doctor than it is to spend your $1/day on sugar.
What stood out to me in this piece by Banerjee and Duflo was the question they asked on page eight: “Should we worry about the fact that the poor are buying less food than they could?” Like a lot of my classmates, I was struck by the fact that food seems to be the first thing to go when a budget decreases. Like Jean mentioned, it seems “irrational” to start cutting calories before cutting out other consumer goods. However, by asking this question, Banerjee and Duflo imply that there are broader consequences associated with this kind of decision-making. Is this to suggest policies that require certain proportions of income spent on food? Or are they simply alluding to the fact that we as people have an ethical obligation to care for the wellbeing of others? This question really stood out to me in the reading because it addresses the reader and takes this case study beyond the scope of the poor village.
Also, I was surprised to learn that private education and health systems tended to provide lower quality care than their publicly funded counterparts. In the US, at least in education, you tend to see the opposite. I think they made a good point to point out that households may not even be sure that private education and healthcare is truly better in these poor areas. As for private healthcare, it seems to have more success in terms of people using it. But it is truly alarming to think that in some of the poorer neighborhoods, healthcare providers could actually cause more harm than good as Banerjee and Duflo wrote of India on page 18. It begs the question of whether or not private healthcare and education are actually worth the investment.
The most striking part of the article was the investigation into why the poor tend not to save money. Additionally it was surprising to learn about their tendency not to use their small amount spending money to maximize nutritional value or capital in their entrepreneurial activities. This was most evident to me regarding the farmers inability to invest in fertilizer that would give them 100% returns.
These lack of attempts at saving or investing for the future (when security is already so uncertain for the poor) was at first very confusing to me. However, this makes perfect sense when looking at the values and societal expectations that I have been exposed to since childhood. People from a similar background as myself think that it is normal and necessary to save, because we are exposed to the United States' growth-oriented culture. Constantly being surrounded by the need for maximizations and reaching full potential is commonplace.
Alternatively, most of these troubled countries do not have the same exposure (let alone ability) that enables them to act in accordance with these growth maximizing ideas. Taking the lack of access to resources, loans, infrastructure in combination with the lack of exposure to ideas of growth and maximization of profits as a societal norm (such as it is in the US), it is easier to understand why people would not save and invest their money back into their own lives to maximize potential profit in the long term.
This look at cultural norms also connects to the differences in collectivistic versus individualistic countries such as the US. In many countries an extremely poor person is used to not being very well fed will spend some of their little income on festivities to be attended with family and neighbors. This makes sense when taking the culture and already poor lifestyle into consideration. The activity of belonging or finding whatever kinds of meaning/happiness that they can out of life would sensibly come before a few more days of a little bit less to eat.
As the rest of my classmates, the point I found most interesting is “the average person living at under $1 per day does not seem to put every available penny into buying more calories” (5). According to an article referenced by Banerjee and Duflo, Deaton and Subramanian (1996), the poorest people “consume on average slightly less than 1400 calories a day” (8) far less than the recommend amount of calories. The article also states that when the poor do have more money to spend on food, they are not spending their money on buying food with better nutritional value but instead buying sugar, salt and processed foods. The poor’s poor diet is causing disease and sickness. As we discussed in class on Tuesday, there appears to be strong correlation between better health and higher income. If this is true why are poor not spending their money more wisely on food? Perhaps the poor are unaware how their food purchases negatively affect their health and should educated on how best to feed themselves.
I found Banjeree and Duflo's conversation on the infrastructure of poor nations interesting. The availability of tap water, electricity, and basic sanitation varied across poor countries, but for the most part were more available to the urban poor more than the rural poor. It would make sense that these basic elements would play a key role in how countries develop. Health and sanitation can help improve mortality rates and standards of living, so how should governments be focusing on these infrastructure problems? As some of my classmates noticed, the state of education in poor countries also stood out to me in this article. Public schools in these areas are falling short of developed countries' standards. Although 93.4 percent of Indian children are enrolled in public schools, their basic math and reading skills are undeveloped. An investment in education now for developing countries could have many positive effects in the future. The problem, though, arises with how and when these changes will start. Improving education is certainly easier said than done, but could have a significant impact down the road.
Rationality of one cannot be judged by the rationality of another. While many people believe that their rational choice is the best choice, they do not have the same information that another may have. While a lot of times economists assume perfect information, we often forget that our perspectives might overshadow the information needed to understand someone else's decisions. From my perspective, it was easy for me to question the lack of specialization and immediately judge, but after reading Duflo and Banerjee’s explanation, it makes more sense not to specialize. I cannot really have an opinion on whether someone is making a rational choice unless I see the choice through their lens. In the same regard, it would be possible that people who choose to consume alcohol or tobacco do not have information on the health consequences of these substances. This information could possibly change their view on the utility of using either alcohol or tobacco, which could change how much they rationally choose to consume. Preferences really do have to be individualized, but what Banerjee and Duflo really show is that when you have the right information, the decisions make much more sense.
This might just be where I differ from other people (although, I'm still pretty sure I produce oxytocin :P). However, I was overall disappointed with this article. Not disappointed with the poor's lot in life but in how they make certain decisions. That being said, the situations are bad, and I am thoroughly incensed at some of the circumstances. Perhaps most infuriating was the quality of education these people's children are receiving. Education (especially basic literacy and numeracy) is one of the fastest and most effective manners in which to improve this section of the population's situation in life. Granted, there may be cultural barriers causing the teaching to be rather feckless (e.g. it's hard to teach if you're having to focus attention on having neither yourself nor your students accosted or attacked). However, still, the issue of education is one which these governments should probably address (although it is hard to say without having all the pieces of the puzzle in one place).
However, reading about the "entrepreneurial" nature of the poor made me realize just how docile most of the developed world's population has become. In my family, this "multiple jobs" thing is commonplace and just considered what you are supposed to do. We garden, hunt, run businesses, and do many more of these things that fell into the category of entrepreneurship in the article. I'm glad to hear that so many of the poor do this; but I consider it one of the very few cases in which the better off should be chastised instead of the poor being praised.
Despite this, there are sections of the article in which I do feel some of the culpability can be said to lie with the poor themselves (albeit nowhere near as much as the standard run-of-the-mill sayings would have one believe). This is largely within the realms of entertainment and substances. Again, this might be due to my...rather atypical upbringing, but at such low levels of income, why one would spend on a radio or TV when there are free forms of entertainment available is nonsensical. Yes, there is a comparison to one's neighbours et cetera, but I would think that allocating resources differently would be much more efficient (even if I myself found myself in those straits). Moreover, the significant purchase of intoxicants as a percent-of-budget measure is mind-boggling as well. Granted, I must agree with Sam that we should also consider people's purchases of these in HDCs on more similar grounds than typically would be done. However, if someone in France were to purchase a bottle of wine on a regular basis, it would constitute less of his/her budget than it does for the poor in this paper. In these situations, I don't believe it would be a far stretch to call the actions relatively irrational. To borrow language from my 398, there are succumbing much more to the "doer" than the "planner."
As a closing note, these issues are complex. I can see things that all parties involved are probably not handling as perfectly as they could. However, it is important to address each of those issues instead of putting on blinders to some of them.
Looking at all the rest of the comments, I have to agree in that I am shocked at how low some of these statistics truly are. I'm used to feeling fortunate for all the luxuries that I have been able to live with but rarely do I think about how lucky I am just to have food on my plate. As a result, what really struck me about this article was the fact that the majority of these low income households would never think to feel bad for themselves. The article mentions how "The poor generally do not complain about their health―but then they also do not complain about life in general either. While the poor certainly feel poor, their levels of self-reported happiness or self-reported health levels are not particularly low (Banerjee, Duflo, and Deaton, 2004)." I found this particularly interesting because in our society, people are constantly complaining about their life. We have an incredibly high standard of living relative to the rest of the world yet we are never satisfied. I feel like part of that comes from America being a place where we strive for excellence which would seem like a good thing, but after reading this article I'm not so sure. If people can live on less than a dollar a day and find a way to do it without complaining, then what does that say about us?
After reading the article and some of my classmates comments, there are some thoughts I would like to share, focusing on the part involving the use of money for other purposes than feeding themselves. My argument is not based from "I come from South America and understand this better than the rest of the people in my class", but from my experience working with poor people while I was in high school, and during these past year at W&L, when I had the opportunity to go to Guatemala on a service trip.
People in less developed countries have a totally different mindset than what we are used here in the US, and especially here at W&L. Not everything is investment banking and making money. During my week in Guatemala, I made friends with a 14 year old kid that worked at a construction site from 4am until noon to support his sister because their parents died in a mudslide. That job does not pay him enough to reach the 2000 calories, and instead of doing afternoon shifts to reach this amount, he would play soccer with his friends, and go to the Semana Santa festivities at night. The article by Banerjee and Duflo described perfectly this behavior, but I think they should do a better job at explaining the reasons behind this. From my conversation with 'Rambo' (that is how he called himself), I found out that he is aware that his expenditure is not the most "rational", as economic books would say, and he realized that there were visible effects of his malnutrition, like in his height, but he explained that given the circumstances that he found himself, he would give preference to the 'small pleasures' in life, like drinking coca cola instead of buying more food, or playing soccer instead of working. It takes a while to get used to the idea, but after hanging out with him every day for a week, I realized that his 'levels of happiness' where the same as someone with infinitely more resources than him. He most likely has a lower life expectancy, and given his situation he will probably never learn a fraction of what another 17 year old boy in a developed country does, but by spending his daily dollar on things that would sound irrational, after his misfortunes and his poor alimentation, he managed to keep a constant smile on his face.
When making an economic decision, there is always an opportunity cost, a marginal cost, and a marginal benefit, and given the circumstances, someone with less resources would prefer to eat ice cream, drink coca cola, or play soccer, instead of eating another tortilla or working extra hours, and this will make total sense in their heads because the instantaneous benefit they get from this is larger. He knew that with the diseases, earthquakes, volcano eruptions, and mudslides, he could die at any moment, like his parents, so why would he save for later and think in the long run?
To add onto the point that Juan addresses with his post, I think that one of the most easily overlooked points raised in this article is the fact that levels of self-reported health and happiness of the poor are not especially low. Despite the fact that levels of stress are (understandably) much higher, their overall level of happiness is not a great concern. Placed in context, most of the seemingly “irrational” spending is completely reasonable. Substances like alcohol and tobacco are methods of coping with the elevated stress levels of everyday life in these areas, and festivals or entertainment are an enjoyable escape from the sub-standard living conditions these people face everyday. Given the importance of the family unit and social networks in these communities, social events like festivals or weddings are especially justifiable. Even a W&L student or person with access to considerable resources and wealth can agree that in times of duress, excessive or unnecessary consumption is bound to occur as a method of coping. I’m sure almost any student will admit to having splurged a little more on desserts, candy, lattes, etc. to cope with the stress of exam week at some point.
The tendency to avoid long-term investment or take on risk for long-term gain also makes sense given the general living conditions and life circumstances of the poor in these countries. Even in the United States, people who grew up in a household that experienced poverty or with a lack of money adopt one of two spending habits: they either are reluctant to ever spend money (knowing how difficult money to come by money might be in the future) or spend any money received immediately (knowing that they might as well capitalize on the opportunity to acquire goods or seek instant gratification that they might miss out on later). With the need to spend so much money on food or other necessities already, it makes sense that many individuals adopt the tendency to seek instance gratification. The risks associated with entrepreneurial endeavors and even something like saving money in the house which can be lost or stolen make it more difficult for long-term plans to increase wealth to come to fruition. Additionally, the risk of illness or injury means that life itself could end or be impaired significantly at any time. As Thomas Hobbes said, life is “ solitary, poor, nasty, brutish, and short.” For people living in poverty or extreme poverty, this statement is especially true and seen firsthand almost every day. When life is that short and difficult, it is most certainly rational to occasionally (or even often) give in to temptation, let go, and live in the moment.
I thought that some of the numbers regarding literacy, percentage of physically impaired or underfed family members, the lack of specialization due to few jobs, etc., were all very shocking, but somewhat what I expected. The situations are terrible, but it is amazing how everything is on a scale of relativity. The 'small pleasures,' such as playing soccer or buying an ice cream, are completely rational when viewed through the perspective of someone like 'Rambo.' You have to have something that gets you through the day, a light at the end of the tunnel, or any form of reward for what you do. Also, when you consider how young most of these kids are that face these decisions, it's truly amazing that they are able to handle so much responsibility and make the amount rational decisions that they do.
I also have to disagree with Austin’s statement, “Moreover, the significant purchase of intoxicants as a percent-of-budget measure is mind-boggling as well.” This makes complete sense – we go out and party for no reason at all, in fact, we even make up reasons to go out and drink (thirsty Thursday?). I don’t mean to stereotype, but generally after we accomplish something, ie finish a project or exam, win (or lose) a game, or even get through the week, we have a few drinks. I don’t know how much a six-pack of natty is in Udaipur, but 5% of even a $2 a day budget spent on alcohol and tobacco seems pretty reasonable to me. Our lives are certainly challenging, and we worked for the many things that we have today…but, in the context of dodging mudslides and malaria, our lives are pretty easy. This simply goes back to what Juan pointed out – it’s the things that get you through the day, and everything is relative.
I am certainly not surprised by the findings of Banerjee and Duflo. While the people of their analysis lived off of $1-$2 PPP per day, they are still human and are likely to engage in certain "pleasures" like smoking or drinking alcohol or a soda, as many of us have mentioned.
But more evident in this article are the linkages, or lack of, between education, health and the decisions of the poor. Coming from the United States, where nutrition is something that is reinforced in our daily lives, either through family, doctors or society in general, education on such topics is lacking in the the poor environments, where it is difficult enough for students to learn to read and write.
This relates to my earlier point, and that is the people studied in the article have the same inclinations that most of us do to enjoy and relax, whether it's watching TV, having a drink, or attending a festival. Meanwhile, their lack of education still remains, an education that could help them realize that it might be better to have another serving of whole grain vs. another soda, or to save money for a more wholesome meal rather than a new television. Then again, poor people have a knack for entertainment just like the rest of us.
In the end, I believe poor people do have choices, as this article introduces the poor as those without choices, but shows whether it's between rice and grain or a TV and a festival, that they do make choices on a daily basis. It is also important to consider that while poor, the people in the study also have cultural and societal norms that influence their choices. While we, as a society, might see the latest new movie as important, they might consider a harvest festival important. Yes, we as group of people and societies are different, in terms of PPP in this case, but we still make choices. While we comparatively have an advantage over those in Udaipur with our resources, perhaps, it might help all of us, whether at W&L or in Indonesia, if we're better educated on our choices.
While I have previously thought about the horrible circumstances of the poor, this article certainly brought to my attention many aspects of poverty I hadn’t ever considered. Primarily, as everyone else has commented, I was shocked by the percentage of the percentage of the $2 or less spent on food. More specifically, the types of food this surprising percentage usually purchases. As Professor Casey mentioned in class, it is easy for us to judge the decisions the poor make and use these “bad decisions” to help further explain why poor people cannot seem to break out of poverty. However, this article helped me to see these poor people as just that, people. The article’s discussion of money spent on alcohol, tobacco, and entertainment, at first, seems reckless and irresponsible. But, as the article continued, I began to have more compassion for these ‘irresponsible’ decisions. I, too, am affected by temptations and lack self-control in the face of things I want. Who am I to criticize people who do not have a fraction of the good fortune I have for their decisions and what they choose to spend their money on? On the same topic, this humanization helps to understand the lack of savings; having savings available is tempting to anyone when the desire for something is high. I can relate to this, as I’m sure everyone else can as well. What it all boils down to is that, like Professor Casey mentioned, it is so difficult for us to really understand or judge the decision making of people who live in such different circumstances from ourselves.
This article reminded me of many of the experiences I had while teaching in China. Certainly the village I was in wasn't in the absolute poverty analyzed in this article, but the situation there would still be unfathomable for most Americans. I don't want to overstate my experiences there because I feel Americans do that too often when visiting poor places, but the article did bring to mind several aspects of life there. During the day the villagers would lounge around, especially those that just sold food in the mornings, and at times it appeared that they were being lazy, though I don't understand their circumstances. In the same manner as the authors of the paper, I wondered why they didn't work other jobs to save money or why they spent a lot of time lounging around during the day.
They also consumed copious amounts of alcohol and cigarettes, to the point that it made conversing with them difficult because of the amount of smoke in the air. One man I spoke to frequently had little to no money but still smoke in excess of 70 cigarettes a day, so I found the discovery of the authors that the poor spend a large fraction of their funds on alcohol and tobacco to be unsurprising, though still irrational. In my experience the data showing the poor spend a lot of entertainment even when they were lacking in nutrition to be true in this village as well; people would often have a tv even if they or their children would not be guaranteed three meals a day. I found this practice to be illogical and frustrating, specifically buying a TV when your kid may not get dinner, but it is unfair to judge them when I have never had similar experiences.
Finally, in Beijing the migrants from the countryside I spoke to often longingly recalled the relaxed lifestyle of the poor villages. They had all left in search of jobs and a better life for their kids, and their children were surely receiving a better education in Beijing than they ever would in a village. However my experiences and this article both seem to illustrate a habit of many poor to not work the entire day. This would be impossible in a job in the city, and I find it very puzzling that this is widespread. Perhaps lack of food is one reason, or just the realization that working thee entire day wouldn't improve their lot in life anyway.
The percentage of income spent on "festivals" by low-income groups seemed important.
In class we watched the TED Talk about Oxytocin and how it impacts emotions. Oxytocin creates feelings of happiness and creates senses of trust. Oxytocin levels are found in highest concentration with the bride, brides mother, and in all involved with the wedding ceremony. This form of festival builds bonds of trust.
Yet, in class we discussed that poorer countries have lower levels of exchange and trust. This assumption seems to either fly in the face of Abhijit V. Banerjee and Esther Duflo's findings. Looking for Oxytocin variations between "rich" and "poor" in this study would be an interesting study. My hypothesis is that nourishment would impact production of Oxytocin and the findings would possibly show lower productions levels in malnourished "poor" people. Just as testosterone inhibits absorption of Oxytocin, I assume malnourishment would have some impact on the ability of "poor" people to create bonds of trust.
I found Banerjee and Duflo’s article to be shocking for many reasons. I was both positively and negatively surprised throughout the paper. It is shocking that there are so many people living on such little income, but was positively shocked by the commendable innovation of these poor and extremely poor people.
The sheer number of people living on $1 or $2 a day is very depressing and seems like an almost hopeless situation in the world. Although it seems that these extremely poor people have choices in their consumption and labor, these choices in comparison to those in wealthier countries is quite limited. It is amazing what these extremely poor people make of their situations, but we cannot ignore the fact that they are essentially starving and unhealthy to most Americans standards.
The authors cite quite a few aspects in the lives of the poor. The authors reveal that while their situations are limited, these people do make many choices (wise or not) in their everyday lives. What I truly feel is that while the poor make choices, they really do not have a choice. It isn’t fair to criticize the poor for not saving, when they are barely making enough money to provide the basic needs. It is impossible to criticize the poor for not encouraging their children to go to school, when they could double their income if their children when to work. We say that specialization is important and that these people could be more efficient if they specialize, but the poor often do not have the capital or time to specialize.
We then see in the article that there are some things that the poor can do to improve their situation but don’t because they prefer not to rather than are unable to. The authors highlight that the poor spend a portion of their dollar a day on tobacco and alcohol. I quickly judged this and looked down upon the people who did this. My thoughts were- how could you possibly think about tobacco and alcohol when you probably do not have enough food or clean water? It is easy to get caught up in what the poor are doing wrong- how can they complain that they aren’t saving when they are buying sugar, tea, and snacks? When I take a step back and sit with my thoughts, I quickly refrain from judgment. Just because these people were not born into the fortunate situation that I was, why should I judge them for acting like humans. Just because my parents have allowed me to go to college and have given me an allowance much greater than one to two dollars a day doesn’t mean that I am allowed to overindulge in sweets or drink alcohol on the weekends and the poor are not. I am lucky enough that when I buy coffee in the morning, I am not taking away from the food I will consume that day, but that does not give me the right to make more choices than a poor person in a poor part of the world- I am afforded more choice in my life, but not more judgment free choice. (I am not sure if that makes a lot of sense). I am afforded more choices, so I should look at myself as fortunate and not at the extremely poor person as incorrect or wrong for their choices. This paper made me realize that it is just as wrong for me to buy a pack of cigarettes as it is for a poor person in India. I can still have an opinion on what the poor do, but I must place the judgment equally on negative behavior for those in HIC as I do those in LIC. So I do question why these extremely poor people would “waste” money on tobacco and alcohol because I do not understand why anyone would waste a significant portion of their income on tobacco and alcohol.
Banerjee and Duflo have helped me understand that limitations placed everyday on the poor and have also given me perspective on how to view the few “choices” that the poor have in their daily life.
Posted by: Samantha Smith | 09/16/2014 at 02:59 PM
This article was very eye opening for me. I admit that I had many of the same feelings as Samantha as I read through it but looking back I realize that that was my quick judgment coming through and thinking through it I fully understood the spending on alcohol and other treats. I thought that this sentiment was very similar to an idea discussed in the Adam Smith: Behavioral Economist paper from Econ 398. In the Theory of Moral Sentiments Smith described how he believed that humans sympathize with and respect the rich and famous while we tend to despise and neglect the poor. He wrote that this is the “great and most universal cause of the corruption of our moral sentiments”. We don’t think anything of rich and famous people spending absurd amounts of money on partying and other forms of entertainment. In fact, we buy magazines and watch shows about these happenings alone. On a little smaller but still absurd scale, we spend significant money ourselves on Fancy Dress each year when we could invest it back into our university, the same way the people in the paper could be investing the money spent on entertainment back into their business. Why do we distinguish between the two decisions? According to Smith it might be because of our tendency to worship those more rich than ourselves while putting those less well off.
Posted by: Lucy Ortiz | 09/16/2014 at 09:47 PM
This article was both very saddening and enlightening. The mere thought of survival on only $1 PPP is unbelievable. I found it interesting to see both how income was made and how it was spent particularly by the extremely poor. I would have assumed previously that the marginal expenditure on food per $1 of additional income would be nearly $1 for people who are critically undernourished, disease-prone and hungry to the point of reduced physical capabilities. I was amazed when reading the part about keeping up with the neighbors and consequently ignoring proper nutrition. I had assumed that in extreme poverty, people overcame petty rivalries and insecurities like that, but I suppose the extremely poor are not so different from anyone else after all.
The lack of access to credit and particularly savings was the most interesting part of the article to me. When thinking about poverty, I had thought of and witnessed people with lack of access to nutrition, adequate housing and healthcare, but I had simply never thought about the lack of access to business resources provided by financial institutions. It made me realize the importance of aid through microfinance programs, subsidized loans and savings account access. A life without savings is a life without any reliable means for survival into old age, and that is an essential resource to keep the young from spreading themselves even thinner to take care of the elderly.
The necessity for entrepreneurship among the extremely poor was another factor of poverty I had not fully considered. It demonstrates how much potential is being wasted in these people because of a lack of education, quality healthcare and access to basic resources necessary to expand a business. If provided even a portion of the resources available to us in the developed world, many of these impoverished people might have made excellent entrepreneurs and business owners.
Posted by: Curtis Jay Correll | 09/16/2014 at 09:50 PM
Banerjee and Duflo’s article gives a holistic overview in regards to the economic lives of those living on between $1-2 a day from across the world. By giving a large breadth of examples from education and healthcare to savings opportunities and micro lending, the article adequately addresses many aspects of life that may be fundamentally different for the extremely poor in underdeveloped nations.
In response to Sam’s comments above, I think there is more to the alcohol and tobacco piece that needs to be addressed. While these two components of consumption could be categorized alongside entertainment, TV, and others, it would be wrong to simplify them to that extent. These indicators may well be casual alcohol consumption and cigarette usage, but they are likely addictive behaviors, which would better explain why such a high percentage of the poor list them as expenditures. Economic literature on rational addiction and addiction discounting further explains the concept whereby alcohol and nicotine addiction leads people to discount the health and monetary benefits of quitting. So, they actually get more utility from continuing these costly and destructive behaviors. Thus, their behavior is economically rational, however counterintuitive that may be.
In better news, this literature also states how education programs, health interventions, and social support, among other factors, have the possibility to lessen addiction discounting and make people realize the true cost of alcohol and tobacco usage. The potential for education and health then ties back into Banerjee and Duflo’s article by emphasizing the lack of high-quality education and preventative and context-driven healthcare that many of these countries are experiencing. Without trained health workers that understand the biological and social factors of addiction, healthy social networks that can support people through quitting, and more, smoking and other addictive behaviors will continue to consume a large portion of people’s incomes. Additionally, if we consider the education, health, and social components of these behaviors to be mutually exclusive, we also will see no difference. While the article likely categorizes its sub-topics for the sake of simplicity, it is critical to emphasize how inextricably intertwined they of these issues are.
Posted by: Kate LeMasters | 09/16/2014 at 09:57 PM
The point made by Banerjee and Duflo that I found most interesting in this article is that as incomes decrease from just poor to extremely poor the relative proportion of people’s income spent on food and more calories does not go up. From my perspective as a not poor person it is hard to imagine this concept. I would “rationally” think that if I had less money I would spend more money on food to survive and stave off hunger, but this is not the case when actually studying the behaviors of the poor. There are so many factors that go into a person’s decision though it is hard to say what is rational and irrational when one hasn’t experienced similar conditions. What are the costs and benefits of spending money on a festival or celebration over spending money on food? There are lots of factors to be considered. On a similar note I think it is surprising that many people wished they saved more or spent their money more wisely. For example 44% of households wished they did not spend as much money on alcohol and tobacco as they did. It sounds like it is not as easy to save as one might think, or at least not as easy when you recognize the spending problems you have, especially with addictive products such as alcohol and tobacco. Just as we discussed in class we cannot say though what is rational in a decision unless we have experienced it.
Posted by: Jean Turlington | 09/17/2014 at 07:52 AM
As others have already pointed out in their comments, I too found the poor's spending pattern on non-essential goods very interesting. Although this consumption could definitely be a result of addictive behavior as Kate argued, I think that such spending habits might be explained in a perfectly rational and socially understandable context. Since poor people often depend on their relatives and neighbors to borrow money, it is probably very important to keep a good relationship with them. Festivals might be the best way for the poor people to ensure good terms with these potential future lenders. Additionally, modest consumption of tobacco and alcohol might help the poor to ease their stress over their financial situation and long day of work and thus better rest.
As for why the poor households do not spend their marginal increase in income on nutrition, we can observe the similar spending pattern in US as well. When I was in POV 101, Professor Pickett told me that many poor households regard food as the most flexible part of their budget. Since they prioritize payment of fixed budgets-such as rent, utility bill, etc- they choose to forego healthy amount of nutrition intake. Additionally, it might be that those living in extreme poverty are so accustomed to constant hunger that they do not necessarily feel reason to increase food consumption with additional income.
Lastly, this article helped me better understand the difficulty in improving public service for education in developing countries. I was surprised to learn that the amount of money the poor households spend in education is insignificant not because of low enrollment rate but because most schools are funded by the national governments. Despite the relatively high enrollment rate, schools in developing countries have not been so effective precisely because of its adverse quality. My biggest question concerning this point would be how to motivate public school teachers to become better educators.
Posted by: HeeJu Jang | 09/17/2014 at 01:33 PM
I liked HeeJu's points regarding why the impoverished would spend money on alcohol or tobacco and also not feeling the need to increase food spending when overall income goes up. She also brought up another point, one that I think is of utmost importance and that is quality of education. I don't just mean quality of public schools but also teaching people in general how to deal with low to very low incomes. I know there are many programs in place, both governmental and NGOs that help try to educate the poor or disadvantaged. They can be taught how to begin the climb out of poverty but these programs are often disjointed or simply not large enough to have an effect on an international scale. That said, it's not like I have any groundbreaking ideas as to where we could go from here, but as we learned in class on Tuesday, education and health driven reform is what leads to real results down the road.
Posted by: Zach Colby | 09/17/2014 at 03:55 PM
Like several of my classmates, I was surprised by many of the findings found in Banerkee and Duflo (2006). These findings made me reflect upon life and culture in the United States. I, as others, was surprised to read that the “extremely poor” and “poor” spend the same amount of money on food. Those with a slightly higher income do not allocate more money to nutrition. While I was first surprised that only 56 to 78% of income of rural households in this study is allocated to food, I later reversed this judgment. It is easy, I think, to say that the poor should spend all the money they can on food to escape hunger. However, this is extreme. The poor and hungry must budget money, just like the rest of us. It was also surprising at first to find that 3% of income is spent on alcohol and tobacco. The poor even favor foods that contain more sugar and are processed.
I think that it is easy to paint a picture of “the poor” in our heads-one in which they work all day and have no money to spend on leisure. However, once I reconsidered these statistics, I recognized there are several similarities to life in the United States. Even those who are well off in America prefer to eat sugary fast-foods over healthy options. We, then, have no right to judge the poor for preferring these foods when we, too, choose fast foods over healthier options. The fact that 44% of respondents would like to cut alcohol and tobacco purchases shows that the poor in this sample also face temptation and give in to guilty pleasures, just like us. Though I was quick to judge these statistics at first, I now understand them more. We have many of the same preferences as those who are poor, and cannot judge them for their desires to drink alcohol or listen to music at a festival.
I do not agree with the authors’ statement that the poor, “see themselves as having a significant amount of choice” (6). Even though the poor could spend more on food, that does not mean they deliberately choose not to. Choice is being able to go to Whole Foods and pick out what you want for dinner that night from a grocery store with thousands of options. I do not think “choice” is choosing whether or not to give up a meal to attend a festival with family members. I think that this statement is ignorant and does not consider the limited options the poor have when making these “choices.”
One final note, I found it extremely interesting to compare the concept of entrepreneurship in these poor nations and in the United States. In the U.S. entrepreneurship seems like a glorified and glamorous way to “make it.” However, entrepreneurship in poor communities is a necessity given the small scale of business and industry. Entrepreneurship is not becoming a CEO, it is selling dosas in the morning and fruit in the afternoon. It is about adaptation and improvising in order to survive the next day. Again, I found this comparison very telling of the sometimes limited and skewed views we adopt in the U.S.
Posted by: Alexandra Butler | 09/17/2014 at 04:01 PM
As many have already said, I am very surprised about the choices by those in poverty to purchase alcohol, tobacco, and entertainment in these countries when the body mass index of most of these people is below the cutoff for being underweight. Their poor food choice as well is startling because there are healthier options for less money and obviously better value. The amount of disease and sickness would lessen, but I’m not sure these people appreciate the relation. They already believe there are going to get really sick no matter what for a certain period of time every year because it has been so common for so long. Another area of concern has to be education. The teachers either do not show up or are not qualified. In my opinion, education is the most important part in improving a country’s economic development. It has affects on almost all other aspects of life. An improvement in the education systems would be an enormous step for some of these impoverished nations.
One aspect of the report I found interesting was the vast difference in certain physical infrastructures of countries, while they all have decently similar percentages of citizens in poverty. 99% of those in the survey data in Mexico have electricity, while it’s only 1.3% in Tanzania. In some countries, up to 38% have tap water, while in several countries that number is below 5%. In Nicaragua, latrines are 100% available and that number is 0% in Udaipur, India. Yes, usually access to tap water and electricity is greater in urban areas. But, I wonder if there are other reasons for such a large gap in infrastructure.
Posted by: Andrew Riehl | 09/17/2014 at 04:41 PM
The limited amount of data, and consistent data across countries, struck me as a huge hindrance to the study of developmental economics. The first several pages of this article talked about how surveys in some country didn’t ask this, and others didn’t and how we can’t compare one things to another because we don’t have the data. I would be interested to see what would change in this discipline with greater resources dedicated to finding more and better information and data about the very people discussed in this article.
Outside of that, something that also struck me was the conversation about the land owners and the lack of enforcement of titles. The author pointed out that many of these poor families have little incentive to use the land in the most efficient way because they are “agents rather than owners.” The example he gave was that leaving land fallow increases its productivity but it also increases the risk of someone seizing the land. The other main point the author discussed was the time that the poor had to dedicate to defending their own land. There is no legal recourse for them because they don’t have a title or deed for the land.
A more organized and official way of documenting who owns what land, and a government presence to enforce it, would be a tremendous step into helping the impoverished in these countries. Surely it wouldn’t fix everything, but being able to mortgage land, having an incentive to use it more efficiently and not wasting time frivolously defending it would no doubt be beneficial to everyone.
Posted by: Austin Hay | 09/17/2014 at 04:50 PM
I appreciated how Banerjee and Duflo took a microeconomic approach to looking at poverty in developing countries. By examining the behaviors of the poor, I felt like I gained a sense of their values and how these may be similar or dissimilar to the values of a rich person. One way of deducing what the poor value is by looking at where they spend the little money that they have. As many people in the class have pointed out, this research shows that the poor spent money on things we might not consider necessities, like festivals, alcohol, or television. I think the point here is that poor people get bored too. Perhaps they value happiness as much as they value education or health. It’s easy to say as an outsider who isn’t poor that the poor people in a developing country would be making a much better investment by spending their money on their dosa business or spending the money to send their child to private school. However, we cannot term their choices as irrational because we are not living on $1 a day- something we briefly talked about the first day of class. A person in a developing country also faces obstacles in infrastructure that seem to encourage what we may call “irrational decisions” on their part. But I think we have to consider the question of would anyone who’s “rational” invest the little money they have in health care if it turns out that the so-called doctors is not qualified at all? No, because that would be irrational. This highlights an issue that poor people in developing countries are accustomed to not being able to trust anyone. Without trust, it would be irrational to save your money in an unreliable bank, pay for private school with an absentee teacher, or invest in health care when the doctors are not qualified. I think the interesting thing that Duflo and Banerjee are pointing out here is that when the poor in developing countries do not have adequate infrastructure in place they may be making the more rational choice in choosing to be happy in spite of their circumstances, like buying sugar instead of rice. It is ultimately more irrational to save up your money to pay for healthcare from a fake doctor than it is to spend your $1/day on sugar.
Posted by: Chandler Moody | 09/17/2014 at 04:54 PM
What stood out to me in this piece by Banerjee and Duflo was the question they asked on page eight: “Should we worry about the fact that the poor are buying less food than they could?” Like a lot of my classmates, I was struck by the fact that food seems to be the first thing to go when a budget decreases. Like Jean mentioned, it seems “irrational” to start cutting calories before cutting out other consumer goods. However, by asking this question, Banerjee and Duflo imply that there are broader consequences associated with this kind of decision-making. Is this to suggest policies that require certain proportions of income spent on food? Or are they simply alluding to the fact that we as people have an ethical obligation to care for the wellbeing of others? This question really stood out to me in the reading because it addresses the reader and takes this case study beyond the scope of the poor village.
Also, I was surprised to learn that private education and health systems tended to provide lower quality care than their publicly funded counterparts. In the US, at least in education, you tend to see the opposite. I think they made a good point to point out that households may not even be sure that private education and healthcare is truly better in these poor areas. As for private healthcare, it seems to have more success in terms of people using it. But it is truly alarming to think that in some of the poorer neighborhoods, healthcare providers could actually cause more harm than good as Banerjee and Duflo wrote of India on page 18. It begs the question of whether or not private healthcare and education are actually worth the investment.
Posted by: Ferrell Carter | 09/17/2014 at 06:13 PM
The most striking part of the article was the investigation into why the poor tend not to save money. Additionally it was surprising to learn about their tendency not to use their small amount spending money to maximize nutritional value or capital in their entrepreneurial activities. This was most evident to me regarding the farmers inability to invest in fertilizer that would give them 100% returns.
These lack of attempts at saving or investing for the future (when security is already so uncertain for the poor) was at first very confusing to me. However, this makes perfect sense when looking at the values and societal expectations that I have been exposed to since childhood. People from a similar background as myself think that it is normal and necessary to save, because we are exposed to the United States' growth-oriented culture. Constantly being surrounded by the need for maximizations and reaching full potential is commonplace.
Alternatively, most of these troubled countries do not have the same exposure (let alone ability) that enables them to act in accordance with these growth maximizing ideas. Taking the lack of access to resources, loans, infrastructure in combination with the lack of exposure to ideas of growth and maximization of profits as a societal norm (such as it is in the US), it is easier to understand why people would not save and invest their money back into their own lives to maximize potential profit in the long term.
This look at cultural norms also connects to the differences in collectivistic versus individualistic countries such as the US. In many countries an extremely poor person is used to not being very well fed will spend some of their little income on festivities to be attended with family and neighbors. This makes sense when taking the culture and already poor lifestyle into consideration. The activity of belonging or finding whatever kinds of meaning/happiness that they can out of life would sensibly come before a few more days of a little bit less to eat.
Posted by: C Wood | 09/17/2014 at 06:42 PM
As the rest of my classmates, the point I found most interesting is “the average person living at under $1 per day does not seem to put every available penny into buying more calories” (5). According to an article referenced by Banerjee and Duflo, Deaton and Subramanian (1996), the poorest people “consume on average slightly less than 1400 calories a day” (8) far less than the recommend amount of calories. The article also states that when the poor do have more money to spend on food, they are not spending their money on buying food with better nutritional value but instead buying sugar, salt and processed foods. The poor’s poor diet is causing disease and sickness. As we discussed in class on Tuesday, there appears to be strong correlation between better health and higher income. If this is true why are poor not spending their money more wisely on food? Perhaps the poor are unaware how their food purchases negatively affect their health and should educated on how best to feed themselves.
Posted by: Bobby DeStefano | 09/17/2014 at 06:47 PM
I found Banjeree and Duflo's conversation on the infrastructure of poor nations interesting. The availability of tap water, electricity, and basic sanitation varied across poor countries, but for the most part were more available to the urban poor more than the rural poor. It would make sense that these basic elements would play a key role in how countries develop. Health and sanitation can help improve mortality rates and standards of living, so how should governments be focusing on these infrastructure problems? As some of my classmates noticed, the state of education in poor countries also stood out to me in this article. Public schools in these areas are falling short of developed countries' standards. Although 93.4 percent of Indian children are enrolled in public schools, their basic math and reading skills are undeveloped. An investment in education now for developing countries could have many positive effects in the future. The problem, though, arises with how and when these changes will start. Improving education is certainly easier said than done, but could have a significant impact down the road.
Posted by: Stephen Moore | 09/17/2014 at 06:54 PM
Rationality of one cannot be judged by the rationality of another. While many people believe that their rational choice is the best choice, they do not have the same information that another may have. While a lot of times economists assume perfect information, we often forget that our perspectives might overshadow the information needed to understand someone else's decisions. From my perspective, it was easy for me to question the lack of specialization and immediately judge, but after reading Duflo and Banerjee’s explanation, it makes more sense not to specialize. I cannot really have an opinion on whether someone is making a rational choice unless I see the choice through their lens. In the same regard, it would be possible that people who choose to consume alcohol or tobacco do not have information on the health consequences of these substances. This information could possibly change their view on the utility of using either alcohol or tobacco, which could change how much they rationally choose to consume. Preferences really do have to be individualized, but what Banerjee and Duflo really show is that when you have the right information, the decisions make much more sense.
Posted by: Madison Smith | 09/17/2014 at 07:06 PM
This might just be where I differ from other people (although, I'm still pretty sure I produce oxytocin :P). However, I was overall disappointed with this article. Not disappointed with the poor's lot in life but in how they make certain decisions. That being said, the situations are bad, and I am thoroughly incensed at some of the circumstances. Perhaps most infuriating was the quality of education these people's children are receiving. Education (especially basic literacy and numeracy) is one of the fastest and most effective manners in which to improve this section of the population's situation in life. Granted, there may be cultural barriers causing the teaching to be rather feckless (e.g. it's hard to teach if you're having to focus attention on having neither yourself nor your students accosted or attacked). However, still, the issue of education is one which these governments should probably address (although it is hard to say without having all the pieces of the puzzle in one place).
However, reading about the "entrepreneurial" nature of the poor made me realize just how docile most of the developed world's population has become. In my family, this "multiple jobs" thing is commonplace and just considered what you are supposed to do. We garden, hunt, run businesses, and do many more of these things that fell into the category of entrepreneurship in the article. I'm glad to hear that so many of the poor do this; but I consider it one of the very few cases in which the better off should be chastised instead of the poor being praised.
Despite this, there are sections of the article in which I do feel some of the culpability can be said to lie with the poor themselves (albeit nowhere near as much as the standard run-of-the-mill sayings would have one believe). This is largely within the realms of entertainment and substances. Again, this might be due to my...rather atypical upbringing, but at such low levels of income, why one would spend on a radio or TV when there are free forms of entertainment available is nonsensical. Yes, there is a comparison to one's neighbours et cetera, but I would think that allocating resources differently would be much more efficient (even if I myself found myself in those straits). Moreover, the significant purchase of intoxicants as a percent-of-budget measure is mind-boggling as well. Granted, I must agree with Sam that we should also consider people's purchases of these in HDCs on more similar grounds than typically would be done. However, if someone in France were to purchase a bottle of wine on a regular basis, it would constitute less of his/her budget than it does for the poor in this paper. In these situations, I don't believe it would be a far stretch to call the actions relatively irrational. To borrow language from my 398, there are succumbing much more to the "doer" than the "planner."
As a closing note, these issues are complex. I can see things that all parties involved are probably not handling as perfectly as they could. However, it is important to address each of those issues instead of putting on blinders to some of them.
Posted by: Austin Pierce | 09/17/2014 at 07:19 PM
Looking at all the rest of the comments, I have to agree in that I am shocked at how low some of these statistics truly are. I'm used to feeling fortunate for all the luxuries that I have been able to live with but rarely do I think about how lucky I am just to have food on my plate. As a result, what really struck me about this article was the fact that the majority of these low income households would never think to feel bad for themselves. The article mentions how "The poor generally do not complain about their health―but then they also do not complain about life in general either. While the poor certainly feel poor, their levels of self-reported happiness or self-reported health levels are not particularly low (Banerjee, Duflo, and Deaton, 2004)." I found this particularly interesting because in our society, people are constantly complaining about their life. We have an incredibly high standard of living relative to the rest of the world yet we are never satisfied. I feel like part of that comes from America being a place where we strive for excellence which would seem like a good thing, but after reading this article I'm not so sure. If people can live on less than a dollar a day and find a way to do it without complaining, then what does that say about us?
Posted by: Andrew Winter | 09/17/2014 at 07:25 PM
After reading the article and some of my classmates comments, there are some thoughts I would like to share, focusing on the part involving the use of money for other purposes than feeding themselves. My argument is not based from "I come from South America and understand this better than the rest of the people in my class", but from my experience working with poor people while I was in high school, and during these past year at W&L, when I had the opportunity to go to Guatemala on a service trip.
People in less developed countries have a totally different mindset than what we are used here in the US, and especially here at W&L. Not everything is investment banking and making money. During my week in Guatemala, I made friends with a 14 year old kid that worked at a construction site from 4am until noon to support his sister because their parents died in a mudslide. That job does not pay him enough to reach the 2000 calories, and instead of doing afternoon shifts to reach this amount, he would play soccer with his friends, and go to the Semana Santa festivities at night. The article by Banerjee and Duflo described perfectly this behavior, but I think they should do a better job at explaining the reasons behind this. From my conversation with 'Rambo' (that is how he called himself), I found out that he is aware that his expenditure is not the most "rational", as economic books would say, and he realized that there were visible effects of his malnutrition, like in his height, but he explained that given the circumstances that he found himself, he would give preference to the 'small pleasures' in life, like drinking coca cola instead of buying more food, or playing soccer instead of working. It takes a while to get used to the idea, but after hanging out with him every day for a week, I realized that his 'levels of happiness' where the same as someone with infinitely more resources than him. He most likely has a lower life expectancy, and given his situation he will probably never learn a fraction of what another 17 year old boy in a developed country does, but by spending his daily dollar on things that would sound irrational, after his misfortunes and his poor alimentation, he managed to keep a constant smile on his face.
When making an economic decision, there is always an opportunity cost, a marginal cost, and a marginal benefit, and given the circumstances, someone with less resources would prefer to eat ice cream, drink coca cola, or play soccer, instead of eating another tortilla or working extra hours, and this will make total sense in their heads because the instantaneous benefit they get from this is larger. He knew that with the diseases, earthquakes, volcano eruptions, and mudslides, he could die at any moment, like his parents, so why would he save for later and think in the long run?
Posted by: Juan Mayol | 09/17/2014 at 08:05 PM
To add onto the point that Juan addresses with his post, I think that one of the most easily overlooked points raised in this article is the fact that levels of self-reported health and happiness of the poor are not especially low. Despite the fact that levels of stress are (understandably) much higher, their overall level of happiness is not a great concern. Placed in context, most of the seemingly “irrational” spending is completely reasonable. Substances like alcohol and tobacco are methods of coping with the elevated stress levels of everyday life in these areas, and festivals or entertainment are an enjoyable escape from the sub-standard living conditions these people face everyday. Given the importance of the family unit and social networks in these communities, social events like festivals or weddings are especially justifiable. Even a W&L student or person with access to considerable resources and wealth can agree that in times of duress, excessive or unnecessary consumption is bound to occur as a method of coping. I’m sure almost any student will admit to having splurged a little more on desserts, candy, lattes, etc. to cope with the stress of exam week at some point.
The tendency to avoid long-term investment or take on risk for long-term gain also makes sense given the general living conditions and life circumstances of the poor in these countries. Even in the United States, people who grew up in a household that experienced poverty or with a lack of money adopt one of two spending habits: they either are reluctant to ever spend money (knowing how difficult money to come by money might be in the future) or spend any money received immediately (knowing that they might as well capitalize on the opportunity to acquire goods or seek instant gratification that they might miss out on later). With the need to spend so much money on food or other necessities already, it makes sense that many individuals adopt the tendency to seek instance gratification. The risks associated with entrepreneurial endeavors and even something like saving money in the house which can be lost or stolen make it more difficult for long-term plans to increase wealth to come to fruition. Additionally, the risk of illness or injury means that life itself could end or be impaired significantly at any time. As Thomas Hobbes said, life is “ solitary, poor, nasty, brutish, and short.” For people living in poverty or extreme poverty, this statement is especially true and seen firsthand almost every day. When life is that short and difficult, it is most certainly rational to occasionally (or even often) give in to temptation, let go, and live in the moment.
Posted by: Griffin Cook | 09/17/2014 at 09:11 PM
I thought that some of the numbers regarding literacy, percentage of physically impaired or underfed family members, the lack of specialization due to few jobs, etc., were all very shocking, but somewhat what I expected. The situations are terrible, but it is amazing how everything is on a scale of relativity. The 'small pleasures,' such as playing soccer or buying an ice cream, are completely rational when viewed through the perspective of someone like 'Rambo.' You have to have something that gets you through the day, a light at the end of the tunnel, or any form of reward for what you do. Also, when you consider how young most of these kids are that face these decisions, it's truly amazing that they are able to handle so much responsibility and make the amount rational decisions that they do.
I also have to disagree with Austin’s statement, “Moreover, the significant purchase of intoxicants as a percent-of-budget measure is mind-boggling as well.” This makes complete sense – we go out and party for no reason at all, in fact, we even make up reasons to go out and drink (thirsty Thursday?). I don’t mean to stereotype, but generally after we accomplish something, ie finish a project or exam, win (or lose) a game, or even get through the week, we have a few drinks. I don’t know how much a six-pack of natty is in Udaipur, but 5% of even a $2 a day budget spent on alcohol and tobacco seems pretty reasonable to me. Our lives are certainly challenging, and we worked for the many things that we have today…but, in the context of dodging mudslides and malaria, our lives are pretty easy. This simply goes back to what Juan pointed out – it’s the things that get you through the day, and everything is relative.
Posted by: Richard Nelson | 09/17/2014 at 09:16 PM
I am certainly not surprised by the findings of Banerjee and Duflo. While the people of their analysis lived off of $1-$2 PPP per day, they are still human and are likely to engage in certain "pleasures" like smoking or drinking alcohol or a soda, as many of us have mentioned.
But more evident in this article are the linkages, or lack of, between education, health and the decisions of the poor. Coming from the United States, where nutrition is something that is reinforced in our daily lives, either through family, doctors or society in general, education on such topics is lacking in the the poor environments, where it is difficult enough for students to learn to read and write.
This relates to my earlier point, and that is the people studied in the article have the same inclinations that most of us do to enjoy and relax, whether it's watching TV, having a drink, or attending a festival. Meanwhile, their lack of education still remains, an education that could help them realize that it might be better to have another serving of whole grain vs. another soda, or to save money for a more wholesome meal rather than a new television. Then again, poor people have a knack for entertainment just like the rest of us.
In the end, I believe poor people do have choices, as this article introduces the poor as those without choices, but shows whether it's between rice and grain or a TV and a festival, that they do make choices on a daily basis. It is also important to consider that while poor, the people in the study also have cultural and societal norms that influence their choices. While we, as a society, might see the latest new movie as important, they might consider a harvest festival important. Yes, we as group of people and societies are different, in terms of PPP in this case, but we still make choices. While we comparatively have an advantage over those in Udaipur with our resources, perhaps, it might help all of us, whether at W&L or in Indonesia, if we're better educated on our choices.
Posted by: Raymond Monasterski | 09/17/2014 at 09:40 PM
While I have previously thought about the horrible circumstances of the poor, this article certainly brought to my attention many aspects of poverty I hadn’t ever considered. Primarily, as everyone else has commented, I was shocked by the percentage of the percentage of the $2 or less spent on food. More specifically, the types of food this surprising percentage usually purchases. As Professor Casey mentioned in class, it is easy for us to judge the decisions the poor make and use these “bad decisions” to help further explain why poor people cannot seem to break out of poverty. However, this article helped me to see these poor people as just that, people. The article’s discussion of money spent on alcohol, tobacco, and entertainment, at first, seems reckless and irresponsible. But, as the article continued, I began to have more compassion for these ‘irresponsible’ decisions. I, too, am affected by temptations and lack self-control in the face of things I want. Who am I to criticize people who do not have a fraction of the good fortune I have for their decisions and what they choose to spend their money on? On the same topic, this humanization helps to understand the lack of savings; having savings available is tempting to anyone when the desire for something is high. I can relate to this, as I’m sure everyone else can as well. What it all boils down to is that, like Professor Casey mentioned, it is so difficult for us to really understand or judge the decision making of people who live in such different circumstances from ourselves.
Posted by: Callie Northrop | 09/17/2014 at 09:41 PM
This article reminded me of many of the experiences I had while teaching in China. Certainly the village I was in wasn't in the absolute poverty analyzed in this article, but the situation there would still be unfathomable for most Americans. I don't want to overstate my experiences there because I feel Americans do that too often when visiting poor places, but the article did bring to mind several aspects of life there. During the day the villagers would lounge around, especially those that just sold food in the mornings, and at times it appeared that they were being lazy, though I don't understand their circumstances. In the same manner as the authors of the paper, I wondered why they didn't work other jobs to save money or why they spent a lot of time lounging around during the day.
They also consumed copious amounts of alcohol and cigarettes, to the point that it made conversing with them difficult because of the amount of smoke in the air. One man I spoke to frequently had little to no money but still smoke in excess of 70 cigarettes a day, so I found the discovery of the authors that the poor spend a large fraction of their funds on alcohol and tobacco to be unsurprising, though still irrational. In my experience the data showing the poor spend a lot of entertainment even when they were lacking in nutrition to be true in this village as well; people would often have a tv even if they or their children would not be guaranteed three meals a day. I found this practice to be illogical and frustrating, specifically buying a TV when your kid may not get dinner, but it is unfair to judge them when I have never had similar experiences.
Finally, in Beijing the migrants from the countryside I spoke to often longingly recalled the relaxed lifestyle of the poor villages. They had all left in search of jobs and a better life for their kids, and their children were surely receiving a better education in Beijing than they ever would in a village. However my experiences and this article both seem to illustrate a habit of many poor to not work the entire day. This would be impossible in a job in the city, and I find it very puzzling that this is widespread. Perhaps lack of food is one reason, or just the realization that working thee entire day wouldn't improve their lot in life anyway.
Posted by: Jacob Strauss | 09/17/2014 at 10:35 PM
The percentage of income spent on "festivals" by low-income groups seemed important.
In class we watched the TED Talk about Oxytocin and how it impacts emotions. Oxytocin creates feelings of happiness and creates senses of trust. Oxytocin levels are found in highest concentration with the bride, brides mother, and in all involved with the wedding ceremony. This form of festival builds bonds of trust.
Yet, in class we discussed that poorer countries have lower levels of exchange and trust. This assumption seems to either fly in the face of Abhijit V. Banerjee and Esther Duflo's findings. Looking for Oxytocin variations between "rich" and "poor" in this study would be an interesting study. My hypothesis is that nourishment would impact production of Oxytocin and the findings would possibly show lower productions levels in malnourished "poor" people. Just as testosterone inhibits absorption of Oxytocin, I assume malnourishment would have some impact on the ability of "poor" people to create bonds of trust.
Posted by: Paul Reilly | 09/17/2014 at 10:45 PM