This article did a fantastic job of explaining the choices made by people living in poverty and extreme poverty, and it challenged many of my assumptions about how the poor choose to spend their money. In any economic model, assumptions are a necessity even though they may not always be accurate. In most models of market behavior, perfect information and perfect competition are assumed. While this may be effective in modelling the behavior of relatively wealthy and educated people, Banerjee and Duflo’s paper indicates that these assumptions are much worse at predicting the economic choices of the poor. Before reading this paper, I assumed that the poor would be forced to spend all of their income on necessities such as food and shelter. Furthermore, I assumed that as poor people earned more money it would be spent on more food and more nutritious food, which would likely provide the largest benefit to the hungry poor. However, these assumptions were clearly untrue, with the poor spending ~65% of their budget on food and 10% of their food budget on sugar, salt and other processed foods. They also spent more money on festivals and entertainment than I expected. Since the choice to spend part of such a limited budget on unnecessary expenditures does not make sense economically, there are clearly other factors at play. While eating tasty but innutritious food and attending festivals is not an investment in a poor person’s capabilities, poor people clearly find utility in these offerings. Festivals allow the poor to participate in society and celebrate their culture, and tasty foods activate pleasure centers in the brain. It is possible that choosing to spend their income on these goods allows the poor to feel like they have some autonomy and freedom of choice in their lives. I would be interested to learn how this research corresponds to the World Bank’s recent report on behavioral economics. Overall, this article brings up many factors specific to development economics and helps to explain why it is impossible to model development without considering culture, politics, environment, psychology, and other inputs.
As I was reading this article, I started to question the way I pictured people's decision making. In high school, I learned about Maslow's hierarchy of needs and how most people will have to fulfill the most basic physiological needs to be able to move the the other needs like social engagement, a feeling of security and "self-realization" or happiness. However, this article contradicted this thought: people do not need to fully meet their food needs, for example, to move on to their social needs (festivals). In this sense, the article does not portray humans as uni-dimensional beings that move only upwards in the hierarchy of needs, but rather as complex, multi-dimensional individuals that have competing needs and desires. Similarly, I was relieved to see that the article did not "romanticized" the poor: it simply described their choices as constraint by their budgets and tried to draw general patterns from this, without making any judgment of character. I think this might have to do with the realization that we are not all just on a spectrum of needs met in which some of us are more "self-realized" than others (the poor), but that we instead have similar aspirations and needs.
Similarly, the article reminded me of Poor Economics, by the same authors, and one of the most shocking insights I got from it: unlike what we generally tend to think, the poor make more, not less, decisions than us. This, they argue, is because many decisions are already made for us. For instance, we do not choose whether we should add chlorine to the water or not subject to our budget, and in most cases, we do not choose to save for retirement (the U.S. might be a bigger exception). Instead, the government or other forms of social institutions make these decisions for us. On the other hand, the poor need to be constantly thinking about details that we take for granted. For instance, the article talks about job diversification for the same individual. This individual needs to be thinking about what the best use of his/her time is, what occupations might be complementary to his/her other occupations, and how to learn the very basics of it. Instead, we take for granted that the labor market and specialization levels are large enough so that this would not usually be an option, at least in dramatic career jumps (let alone different jobs at the same time). Clearly, there are people that do it, but the general trend is different from this.
As both Daniel and Sarah mentioned, the part that surprised me the most in this article was the fact that the extremely poor "do not seem to put every available penny into buying more calories." I had always naively assumed that the poor spent whatever money that possessed on food and nutrition. I also found it extremely interesting how the poor spent most of their remaining money on festivals. These two findings demonstrate just how many choices the poor do indeed make each and every day and that they often "choose not to exercise it in the direction of spending on food..." Lastly, I found the section on self-reported happiness very fascinating. Although the poor "feel poor," their levels of self-reported happiness or self-reported health levels are not particularly low. Despite this finding, the poor do report that they are under a great deal of stress. I found these two findings to be somewhat contradicting.
I believe Banerjee and Duflo have done a very good job of laying out the spending and consumption habits to illustrate the lives of the poor and extremely poor. The paper was very insightful and brought to mind a lot of questions as to the economic solution for the poor. One of the main issues brought up in the paper was the lack of incentive for the poor to save any amount of money or to reinvest in their company. The example of fertilizer was very interesting as poor farmers usually do not use fertilizer even though it has been shown to be a great investment for farmers, and can be bought in small quantities at low cost. The Kenyan program that offered farmers a voucher with a subsidy to buy fertilizer later had great success. Programs like this may be a good idea in developing nations so that the poor will be encouraged to save.
Another interesting point of the paper is the fact that they poor don’t eat as many calories as they should even though they could be spending more on food. The paper suggests that a reason for this may be that the poor fear sickness that will drop their weight either way, making the extra money they spend on food useless. Being underweight leads to sickness, and being sick leads to being underweight. This cycle is much like other cycles seen in this paper. With no capital, the poor can’t bring their businesses to scale, and thus can’t make much money. What does it take to break the poor out of these cycles? Is a big push needed?
Banerjee and Duflo masterfully illustrate the lifestyles of people living in poverty and extreme poverty. The choices that are made on a daily basis by the people in this study were interesting, and at times, mind-boggling. What may seem to be the obvious choice to some in a circumstance is not necessarily chosen by people living in poor economic conditions. This poor decision-making process can be seen in many instances. The instance in which this process is unmistakable is when a choice for more food is presented. It is mentioned that, “the poorest consume on average slightly less than 1400 calories a day”. It is clear that these people are malnourished, but instead of spending a larger portion of their income on high caloric food, spending instead goes towards the non-essentials such as alcohol and tobacco, and forms of entertainment such as a radio, TV, or a festival. The daily savings that are required to purchase a television could, instead, go towards buying more food that they desperately need. A reason that was given as to why they do not purchase more food is that they are certain to fall ill, which would cause them to lose the weight that was put on by the extra food. However, what they fail to realize, is that the malnutrition they are experiencing is heavily contributing to their immune systems inability to fight off infection and disease, only progressing the process further. This decision-making and ignorance is related to the lack of education that the majority of people living in poverty and extreme poverty receive.
This article did an excellent job of conveying how poor people spend, receive, and save their money. One would assume that families that are considered poor would spend most of their money on essentials such as food. The article indicates that among the 13 countries within the study the average person living at under $1 per day spends about 50-75% of their money on food. In some of the countries, this percentage is right at 50% which is astonishing. Alcohol and tobacco account for 5-10% of extremely poor people’s budget which seems unnecessary, but these people might need these consumables to cope with their everyday life which might make these consumables necessary. Also, I didn’t realize that poor people in some of these countries spend a portion of their budget on festivals which appears extremely wasteful.
I thought it was interesting that most of these extremely poor people want to save money; however, they have no means to do so. Storing it underneath a mattress or in a pillow case is not sufficient enough to protect their savings; therefore, they feel the need to spend their money right away on something useful. In the short term, this idea can be justified, but in the long term this just keeps them in a state of poverty. Other factors in these poor countries for them to remain in poverty are inadequate investments in education and health. The non-existence of specialized labor and poor health combined with no savings just keep these people in poverty. If health was eliminated as a concern from these people’s lives, I think that this would help alleviate all other concerns and maybe one day end poverty for many of these people.
In the last section of the paper, the authors strive to give some insight into some specific economic behaviors of the poor – one question I wished they had tackled is why the poor seem to go it alone most of the time. Throughout the article, the authors provide evidence that small scale and lack of a capital is a common problem that hampers the efficiency and success of poor entrepreneurs. When I was in Ghana during spring term, we could hardly turn the corner without seeing crowds women with babies on their backs competing to hawk bags of plantain chips and bottles of water or young men trying to sell us packs of gum through the bus window. The authors give the example of the women in India making dosas and suggest it would be more efficient for the women to work in pairs. So why don’t these women pool their resources and skills, work together, and share the profits? Why aren’t there more cooperatives or similar institutions (formal or informal) in place that seek to empower the poor and encourage community cooperation and groth? For example, if three of the women making dosas chose to work together, they might be able to produce enough collateral to secure a loan, buy some capital, increase the efficiency of their dosa-making operation, and ultimately their income. With more success, they may even be able to establish a more permanent eatery in their community. Both the UN and the ILO recognize the power of cooperatives in promoting economic and social growth among all groups of people – men, women, and children – particularly in agricultural communities. Is this seeming lack of cooperation another example of market failure or risk spreading behavior?
On a different note, today the BBC is airing a program called “Don’t Panic – How to End Poverty in 15 Years,” in which Professor Hans Rosling says the world is on track to eradicate extreme poverty in the next 15 years. I think it will be really interesting to see how Rosling’s presentation addresses some of the inherent issues faced by the poor noted in this article. Here’s the link → http://www.bbc.co.uk/programmes/b06drxls
This article clearly presents the decisions the poor must make that many readers, including myself, hadn't thought about before. This is important information when thinking about the next step: what to do to help the poor. What action should be taken first? What issue is deemed the most important one to address? Why choose one over another? The poor have a lack of insurance and often no reliable and safe way to save their money. More likely than not, they do not have proper health or education. One statistic from the article said of the extremely poor in Udaipur, "only 57 percent report that the members of their household had enough to eat throughout the year." Many poor people hold more than one job, but have little to no specialized skill. They are often self-employed but fail to be efficient on such a small scale. The combination of all these factors keeps the poor in an endless cycle of poverty. The solution? That's where the conversation needs to move next.
I would argue that education is one of the most important factors. However, according to the article, "one concern [with investing in education] comes from the mounting evidence ... that public schools are often dysfunctional." Providing good and reliable public education is crucial. If young adults are able to learn specialized skills, it would enable them to secure a better job in the future. Through the school, meals could be provided for the poor and extremely poor children. This would allow the parents to eat full meals without having to worry if their children have been fed. As young adults, they would be better informed to make decisions regarding money and advocating for policy reform. But in order for kids to be in school, they have to be healthy. Thus, health and nutrition could also easily be argued as the most important factor. There are strong reasons to focusing on any of these issues first. The simple fact is that they are connected. It is clear that the poor need help alleviating some of the stress placed upon them every day. What developed countries need to do now is determine the best plan of action to help the greatest number of people living in poverty try to escape it.
This article does a good job representing how the poorest people in the world live. However, I would argue that only having $2.16 or less of purchasing power in some areas is not as awful as we perceive it to be. Many of these people live in areas that don't use money for many things. Instead, they trade in actual physical goods such as crops, tools and things like that.
That being said, it is still important that people in power do all they can to advance these areas into more modern financial and economic times. To do this, they need have enough production of the staple products such as food, tools and basic services. This can be achieved by having the government bring in modern technologies or tools to increase production beyond that of the basic worker.
Should these people successfully increase their production, they can use the excess of labor to learn different trades and further increase their earning potential. They can also send people to schools and pressure the government to increase the level of the poorer schools. The paper discusses this, and it is one of the fundamental elements of a growing economy. Ultimately, increasing both the quality and quantity of education of the poor is one of, if not the, most important things that can help improve the economic and financial outcomes of a region.
Like we discussed in class on Tuesday, this paper clearly illustrated the effects of low income and how there is great diversity and variation from country to country. While reading this paper, I thought about the three core values of development, specifically self-esteem. As many others have already mentioned, I, too, was initially surprised that the poor were willing to spend their money on a television rather than other basic necessities, such as food. However, then I thought about how the act of buying a television, which is a common commodity to most of us, most likely provides the poor with feelings of self-worth and pride. The ownership of a television boosts their self-esteem by improving their standard of living with a form of joy and amusement. Banerjee and Duflo mentioned that the poor spend their money on entertainment “to keep up with their neighbors” (Banerjee and Duflo, 21). I believe this to be true because when the poor see others owning a television and they do not, they feel worthless and inadequate. Since most of the time the poor feel like an outcast to society, owning a television helps the poor escape for a moment in time, forget about their troubles, and feel like a part of society. This boost in self-esteem could be even more beneficial to the lives of the poor than eating a few more meals that would not greatly improve their health.
Often time we hear about how many people in the world live on less than $2 a day but are given no context as to what that means and where these poor people are directing their resources. I thought this article did a great job of explaining all of the different choices that poor people make when it comes to resource allocation and how they go about functioning with so little capital. The article was so detailed in so many aspects of their lives that it almost makes it hard to think of all of the pieces together and really get a feel for the article as a whole and thus I think it is easier to discuss individual questions they addresses. As several people have mentioned above I too was shocked that people didn't allocate their money to maximize calories and instead spent a fair amount on vices and forms of entertainment. I would have always thought that the reason that people went hungry was because they were simply unable to acquire the food needed and not that they chose to buy tobacco, alcohol and have parades while sacrificing quantity of food. I thought the section at the end did a great job of addressing the questions brought up in the piece but the one reasoning I didn't exactly follow was why they didn't eat more. The authors propose that it could be the extra food would not do much because they would ultimately become weak from sickness. While it is true that eating more would not magically prevent them from any future disease it seems as though a healthy diet could help to some degree either mitigate the effects of sickness of help limit the likelihood one would become sick. The other example was that the poor don't have the self control to spend on food and not on vices and entertainment which seems to make more intuitive sense. It is easy for someone like me to say that the person with not much to eat should have no other desires and spend only on food.
The information on education was also interesting to me. In 398 we have been talking a lot about the relationship between health, education, and development and how it is vital for a developing economy to emphasize education as it has positive externalities. From the date we can see that most poor people don't spend money on their children's education and they are unable to determine the quality of the education their children are receiving which is more of a reason for governments and NGO's to place a greater emphasis on education in developing countries because the people themselves aren't allocating their own personal resources to it.
One of the things I found to be exceptionally interesting was the distribution of consumption by the poor. Despite how malnourished/weak the impoverished are, they tend to still spend what little money they have on alcohol, tobacco, and other similar items. I found this interesting because once again this ordeal is a testament to the irrational behaviors of people, and this type of information is crucial to making effective policy to aid the poor in their situation. Not only this, but spending on festivals is also an interesting use of money. Perhaps this attests to the strong cultural connection that the impoverished have. This leads to further questions such as: do the poor have a stronger sense of community than their counterparts? Is there any way to actually measure this and could this have any policy implications?
Similarly, I find it surprising that the levels of self-reported unhappiness are not typically incredibly low for the poor as a whole. I understand the stress and anxiety accompanied with being impoverished are an incredible onus, but I would have thought that their levels of self-reported unhappiness would be lower because of this.
For people who live in developed nations, it is very difficult to conceptualize how people in poor countries live on one or two dollars per day. This article does a good job of conveying what the extremely poor in different areas of the world spend their money on and what their lives are like. In class on Tuesday, Professor Casey mentioned that there have been students in other universities who have tried to live on two dollars a day in order to see what such a lifestyle is like. That made me think immediately about how one can afford to eat on such a low salary. I immediately assumed that food would be the main source on expenditure for these families. I was surprised to read in this article that food only accounts for 56-74% of the budget of extremely poor urban families and 56-78% of rural poor families. It would seem that people in these countries would spend more of their money not only on more food, but more nutritious, calorie packed food. It was shocking to read that while two-thirds of food expenditure in India in 1983 was on high-calorie grains called millets but that in 2005 that number has gone down to nearly zero. As a result, families are consuming far fewer calories than they used to. This seems backwards to me, as I assumed they would simply try to maximize their calories with the little money they have. I was also surprised to see how high spending was on luxuries such as alcohol, tobacco, and festivals. Spending on alcohol comprises 8% of the budget of the extremely poor in Mexico, which is shockingly high. While we assume those living under $2 per day have little to no options for what they spend their money on, Banerjee and Duflo illustrate that they do indeed have choices, and they do not make the same decisions you might automatically assume they would.
As I read, I found the breakdown of how the “poor” spend their money to be fascinating. I too fell into the “common image of the extremely poor … that they do not get to make many real choices.” I think a big reason why so many support this image is the failure to understand how far one can stretch the $1.08 and $2.16 per day. In part because this is based on a 1993 Purchasing Power index (the dollars per day they have now in 2015 is presumably significantly higher) and in part, as mentioned in a prior post, because a lot of what they buy is not necessarily paid for in traditional currency (crops, tools, livestock, etc.) they’re income gives them a surprising degree of choice. The choice to spend such a high percentage on festivals and entertainment seems ridiculous at first, but considering how much the develop world spends it is hard to condemn these decisions. (May be worth looking into the percentage of income the develop world spends on similar luxuries)
I went to Brazil last spring term and will never forget the number and quality of TV’s I saw in what appeared to be a horribly impoverished neighborhood. Based on my experience and this article I am shocked by the amazing efforts people will go through to make room for luxury goods.
The most fascinating part of “The Economics Lives of the Poor” by Abhijit V. Banerjee and Esther Duflo was when they discussed how the poor spend their money. I feel like people often believe that the extremely poor would be spending their last penny on food, but Banerjee and Duflo allude to the idea that this is not always the case. People in poverty often spend some portion on their money on “non-necessities.” I thought it was really interesting when they talked about how the spending on festivals is an important part of the budget for the many extremely poor households. Specifically in Udaipur, they give you the facts that more than 99% of the extremely poor households spent money on some type of festival. One may wonder why such a staggering number of extremely poor people are spending money on festivals instead of food. This does not seem “rational” to us. However, thinking more deeply about this, festival could provide a way of relief. In Nepal, festivals are a big part of life, and it is a time for people to come together and celebrate. I would argue that even the extremely poor are making a “rational” decision. While the extra cents could provide more food, maybe they get something more substantive for their soul and not just their bellies. In this way, they may be getting a higher utility by using the money on festivals rather than on food because it may provide them with more happiness. The main take-away that I took from this article can be summed in this quote: “the poor do see themselves as having a significant amount of choice.” What economics comes down to is decision-making, and this article shows that even the extremely poor are making choices, that they also have to face trade-offs, and that they also have different preferences that yield different utilities.
The article’s discussion of the economic choices, constraints, and challenges of the poor provided a broad overview of the factors affecting the percentage of the global population that consumes less that $1 a day. Consumption spending at this level seems unimaginable- how many items in Lexington Kroger, or Co Op can we find for less than $1? A major challenge in reading this article was imagining this perspective; however, the author’s breakdown of the categories of consumption expenditure made the discussion more tangible. Like the authors, I was surprised by the percentage food consumption represents to total consumption (~56-78%). The additional discussion about the discrepancy between goods the poor actually buy with this money, and the goods that would maximize their caloric intake was additionally concerning and highlighted to my attention the significance of nutritional education, especially for those on extremely small food budgets. As the authors continued to discuss the issues with public education systems in many developing countries, this highlighted not only the connection between health and education but also the circularity of many issues of poverty: how are the poor supposed to enhance the purchasing power of their dollar(s) to maximize nutrition without sufficient education?
Similar to several other students, what stood out the most to me in this article was the way that people in poverty spend their money. When buying food it would make sense to us to spend money on the most nutritional calories that you could afford, but instead they choose to pay more for rice, sugar, salt, and processed food. Part of the decision process is that the poor “see themselves as having a significant amount of choice,” but Banerjee and Duflo point out that the poor are not nearly as hungry for as much food as we would expect. When they chose to spend money on festivals, they are choosing something that leads to more meaning in their life. The statement that I found the most interesting was that when surveyed, the poor reported normal levels of happiness but obviously a higher level of stress. There is a certain threshold that money can be related to happiness, but I never considered those below that threshold to not be significantly different from those with a higher income. In an article I found in the New Yorker, they expand upon the idea that the social connections and religious tradition (festivals for example) help them lead meaningful lives, which is related to happiness. Overall it is a very interesting article in relation to Banerjee and Duflo’s article. http://www.newyorker.com/business/currency/do-the-poor-have-more-meaningful-lives
This article does an incredible job at highlighting the characteristics of the poor. I enjoyed how the authors described the ways in which the poor lived, but they also hypothesized their lifestyle choices. To me, the most interesting point made in this article was the analysis of the poor’s consumption habits. Towards the end of the article, I read the question that had been circling in my own head throughout the entire reading. The authors ask, “why the poor don’t eat more?” The nutritional statistics of the poor previously reported are saddening. Among the rural and poor, they spend about a little more than half of their income on food. These left me feeling selfish at the dietary resources I have. However, my feelings were momentarily shifted when I read about the poor’s spending on cultural festivals and other sources of entertainment. I was puzzled by their consumption choices. I found it difficult to understand why they wouldn’t allocate some of the entertainment money on more food. One possible conclusion is that the poor want to exercise their freedom of choice as much as people of developed countries do so. Another plausible conclusion, in my opinion, is due to their lack of education. The 2 percent that the poor invest on education does not provide them with the knowledge they need to make successful decisions in their lives. They not only lack academic knowledge, but common knowledge about optimal and smart consumption and production habits. Maybe if they received more advanced education, they could better understand the benefits of larger food investments and smaller entertainment investments.
Throughout the article, I kept drawing on my volunteer experience with underprivileged and impoverished kids in Camden, New Jersey. I worked at an after school care program with elementary and middle school children. One group of boys really stood out to me. During the winter months, they were still wearing the shorts they wore throughout the summer and fall. I could never understand how they did not have one pair of pants to keep them warm. If they had shorts for the summer, couldn’t they have pants for the winter? One day they were telling me about the large amount of money they were saving to spend on a game boy. My immediate thought was if they could save coins and dollars for a plastic piece of entertainment, where was their smaller sum of money for pants? They were more focused on the idea of this technology than being warm and healthy. I feel that this experience relates to the idea presented in the article. The poor are oddly fixated on luxury goods and are willing to sacrifice necessary items for them.
A lot of my fellow classmates have been posting about their perceptions of what the poor spend their money on in their comments, particularly how entertainment purchases are unexpectedly high. As Rachana says, it doesn't seem rational at first to us because we place such an emphasis on meeting the basic needs of food, water, shelter, and health (in general). Entertainment is a seriously under-appreciated basic function of life and doesn't seem to get full credit for the important role that it plays in human life. Anyone who has a taken a poverty class here at Washington and Lee has read the noteworthy works of Martha Nussbaum . Her works are inspired by Sen and his capability approach as we discussed in class yesterday. Nussbaum takes Sen's approach and outlines the 10 core human capabilities. Of course there are the ones that one would probably expect to be on there - life, bodily health, integrity. But the ninth, and in my opinion, the most underrated is "play - being able to laugh, to play, to enjoy recreational activities". Play is essential to human life, just not necessarily essential to what we think of as survival on a daily basis; it helps foster relationships, create a high self worth, and relieves stress, among many other things. Without play, humans cannot be as productive or efficient as they could be. Thus, it does not surprise me that the poor are spending a larger proportion of their income on festivals and other forms of entertainment. Play has a lot of positive externalities which often go unnoticed when trying to measure development and understanding the poors's choices.
This article does a great job of giving insight on how families that qualify as being below the poverty line spend their money. It is hard to conceptualize what living on $1-$2 a day, but Banerjee and Duflo show how families across the world do it. One part that stuck out in particular was how the poverty stricken families no matter the geographic location spent a big portion of their earnings on festivities. It comes to no surprise to me that tobacco and alcohol are high expenses, but the festivities portion of their money reminded me of what we discussed in class on tuesday about the three parts of development: levels of living, raising wellness and freedom. Although these families are below the poverty line, they are still willing to spend a portion of their money on things such as weddings. Although, they can't afford luxury items, they all value meaningful events in life. These events bring wellness to their lives that nothing else can. They don't spend money on movies or video shows, they choose to spend their money of events that bring the most happiness to their life. Although they are below the poverty line and struggle to eat food on a regular basis, they all choose to take part in these memorable events. Some people believe that raising the levels of living will lead to bigger freedom and wellness, which might be the case, but the people that took part in the survey show that raising freedom and wellness is more important that just increasing the levels of living.
I found Banerjee and Duflo's research report extremely insightful and thorough. From topics ranging on the poor's living arrangements, how they spend and earn their money, the market and economic environment available to them, and then their infrastructure choices, Banerjee and Duflo give a description of the choices and sacrifices that the poor encounter everyday and their numerous wise and thoughtful solutions to survive at such low income levels. While we take so many things for granted in our day-to-day routines, nothing is guaranteed for the poor and their ability to run a quick cost-benefit analysis can be the difference between life and death. I was obviously fascinated to learn the different reasons that the poor and extremely poor are pushed to act in certain ways based on their situation, however, I found the psychological aspect, the fact that "the poor certainly feel poor, [but] their levels of self-reported happiness or self-reported health levels are not particularly low," extremely uplifting and powerful. The little stress reported throughout a year was a result of health problems, mainly from needing to cut meals, and not because of their situation. It definitely sent a powerful message to me for the stresses and unhappiness that I face in no way parallels the pain that these individuals endure on a daily basis.
I also believe that the facts reported in this research will help to debunk many misunderstandings and stereotypes of the poor. After reading the stories and statistics, these individuals are dealt a terrible situation in which they work countless hours, making very little money, in order to provide for their families, all while living relatively happy lives. Economically speaking, these peoples' actions and mindset are fascinating.
From this paper you can see that the characteristics of developing countries incentivizes the poor and extremely poor to not fully utilize their resources and make the most efficient decisions. The development report gives three principles left out of the standard economic model. The first principle, people think automatically. Fast decision-making can be seen in the paper when the poor are selecting their food. A closer inspection of their food selection reveals insufficient utilization of nutrients per dollar. Developing countries seem to foster impulsive decision-making. The second principle, humans think socially. In the paper this can be seen by the tendencies of poor migrant workers to not stay away from home for too long. The lack in financial institutions and infrastructures in developing countries creates the need for a social credit system, which would make any long work migrations disadvantageous. The third principle, people think with mental models. This can be shown with the reluctance of poor farmers to use fertilizer again after seeing an increase in their crop production after use. The mental model they construct is that the ability to save small sums of money needed for fertilizer doesn’t outweigh the need for immediate consumption. The characteristics of developing countries yield to an increase in these 3 principles for the poor and extremely poor.
Like most people have said, I think this article does a great job of illustrating how the poor make choices and the environments that they make these choices in. One thing I really liked about this reading is the way that the authors provide possible explanations for why the poor make certain decisions. For instance, when reading this, a cynical person might be quick to criticize the poor for their low levels of “good consumption” instead of spending on alcohol, tobacco, and festivals. A cynical person might also be quick to attribute this behavior to a lack of self-control. However, Duflo and Banarjee present the possibility that eating more may not help them much in the long run because of the risk of disease. They also provide evidence that this behavior cannot be explained by a lack of self-control because the poor do spend on other things that require saving, namely entertainment.
The authors talk about how self-reported happiness levels are not low among the poor. This got me thinking about the relationship between poverty and happiness, which was something that was constantly on my mind while volunteering in Belize through the Shepherd Program. During my eight-week stay there, I spent an entire week doing survey work with the Red Cross and Florida State in San Mateo, an extremely poor neighborhood on the island. As I went door to door and talked to the people living in the neighborhood, I encountered so many people who appeared to be happy and optimistic, despite the harsh conditions they were living in. This was extremely surprising to me for obvious reasons, and is something that I am still grappling with. Another thing worth discussion is the relationship between poverty, happiness and meaningfulness. Here’s a cool article that Professor Pickett sent me recently on the topic: http://www.newyorker.com/business/currency/do-the-poor-have-more-meaningful-lives. I would love to know other people's opinions on all of this.
After reading the article and my classmates' comments, I want to bring a bit of different perspective on the article to the discussion. I too found Banerjee and Duflo's careful study of the habits of the poor and extremely poor to be very interesting. Their findings in the data certainly challenge assumptions that are made by policy makers, particularly with regard to the degree of choice that the poor have (as Daniel pointed out). Given our discussion last week on the need for models within economics, I understand the authors' angle of looking at a very broad swath of people.
However, I do not particularly like the way in which they discussed their data, their sweeping generalizations about the decisions of the poor, or their somewhat degrading tone in the article. Their section headings in the conclusion of the paper, "Why Don't the Poor ____?," struck me as particularly derogatory. Their diction barely avoided demonizing the poor in favor of presenting their data in a way that set apart the poor by reinforcing the concept of a 'culture of poverty'. A topic discussed widely in my Poverty and Human Capabilities 101 class, a 'culture of poverty' implies that there is a uniform belief and value system surrounding all poor, indiscriminate of their differences. The authors challenge many of the common misconceptions regarding the 'culture' shared by people who are impoverished, but they failed to discuss the data in a way that diverged from creating a differently defined 'culture'.
I was also disappointed to read their expertly detached discussion of "alcohol and tobacco" as well as "calories." By the way these topics were discussed in this paper, one would think that all people were born with an inherent understanding of addiction and caloric consumption. While straying from many common assumptions in economics, the authors neglected to challenge the assumption of rational decision making with regard to alcohol/tobacco and calories. They made no mention (or if they did, it escaped me) of the possibility that these poor might be addicted to alcohol or tobacco, which would of course impact their consumption habits. Further, they neglected discussing food beyond its caloric value -- the cultural norms surrounding eating, or the ease and effort required in food preparation. They made an offhand mention regarding the possibility of good taste/flavor affecting people's food choices, but this wasn't explored nearly as thoroughly as people's decisions to spend their money on festivals, or other activities that (presumably) bring them enjoyment.
Overall, I recognize this paper's significance in reporting the economic trends among impoverished people. I am disappointed, however, that the authors failed to challenge, but some points successfully reinforce, some of the prevailing jargon and manner of discussion surrounding poverty.
I would first like to point out how taken aback I was by the fact that such large portions of the global population live on 1-to-2 USD per day, accounting for purchase parity. It truly is hard to envision how there is room for discretionary spending outside of food, particularly when supporting such relatively large families.
The point I'd like to discuss is on p. 12, when the authors discuss the lack of specialization among poor families across the globe. Specialized skills are not sought out, as people may move from job to job to pick up income wherever they can. Many of those in agriculture do not do it to the point of making a full living. Although development economics is often discussed within the framework of large structural investments supporting education, infrastructure and other critical features of a developed economy, perhaps programs that mirrored technical colleges in the U.S. could be beneficial. Learning the specialized craft of being a mechanic or tailor could be the small catalyst that significantly increases someone's earning potential. It is important to note, however, that this could be a risky endeavor. There would be a significant opportunity cost should the individual find limited demand in the market for her specialized skill set.
This article did a fantastic job of explaining the choices made by people living in poverty and extreme poverty, and it challenged many of my assumptions about how the poor choose to spend their money. In any economic model, assumptions are a necessity even though they may not always be accurate. In most models of market behavior, perfect information and perfect competition are assumed. While this may be effective in modelling the behavior of relatively wealthy and educated people, Banerjee and Duflo’s paper indicates that these assumptions are much worse at predicting the economic choices of the poor. Before reading this paper, I assumed that the poor would be forced to spend all of their income on necessities such as food and shelter. Furthermore, I assumed that as poor people earned more money it would be spent on more food and more nutritious food, which would likely provide the largest benefit to the hungry poor. However, these assumptions were clearly untrue, with the poor spending ~65% of their budget on food and 10% of their food budget on sugar, salt and other processed foods. They also spent more money on festivals and entertainment than I expected. Since the choice to spend part of such a limited budget on unnecessary expenditures does not make sense economically, there are clearly other factors at play. While eating tasty but innutritious food and attending festivals is not an investment in a poor person’s capabilities, poor people clearly find utility in these offerings. Festivals allow the poor to participate in society and celebrate their culture, and tasty foods activate pleasure centers in the brain. It is possible that choosing to spend their income on these goods allows the poor to feel like they have some autonomy and freedom of choice in their lives. I would be interested to learn how this research corresponds to the World Bank’s recent report on behavioral economics. Overall, this article brings up many factors specific to development economics and helps to explain why it is impossible to model development without considering culture, politics, environment, psychology, and other inputs.
Posted by: Sarah Rachal | 09/22/2015 at 04:22 PM
As I was reading this article, I started to question the way I pictured people's decision making. In high school, I learned about Maslow's hierarchy of needs and how most people will have to fulfill the most basic physiological needs to be able to move the the other needs like social engagement, a feeling of security and "self-realization" or happiness. However, this article contradicted this thought: people do not need to fully meet their food needs, for example, to move on to their social needs (festivals). In this sense, the article does not portray humans as uni-dimensional beings that move only upwards in the hierarchy of needs, but rather as complex, multi-dimensional individuals that have competing needs and desires. Similarly, I was relieved to see that the article did not "romanticized" the poor: it simply described their choices as constraint by their budgets and tried to draw general patterns from this, without making any judgment of character. I think this might have to do with the realization that we are not all just on a spectrum of needs met in which some of us are more "self-realized" than others (the poor), but that we instead have similar aspirations and needs.
Similarly, the article reminded me of Poor Economics, by the same authors, and one of the most shocking insights I got from it: unlike what we generally tend to think, the poor make more, not less, decisions than us. This, they argue, is because many decisions are already made for us. For instance, we do not choose whether we should add chlorine to the water or not subject to our budget, and in most cases, we do not choose to save for retirement (the U.S. might be a bigger exception). Instead, the government or other forms of social institutions make these decisions for us. On the other hand, the poor need to be constantly thinking about details that we take for granted. For instance, the article talks about job diversification for the same individual. This individual needs to be thinking about what the best use of his/her time is, what occupations might be complementary to his/her other occupations, and how to learn the very basics of it. Instead, we take for granted that the labor market and specialization levels are large enough so that this would not usually be an option, at least in dramatic career jumps (let alone different jobs at the same time). Clearly, there are people that do it, but the general trend is different from this.
Posted by: Daniel Rodriguez-Segura | 09/23/2015 at 09:29 AM
As both Daniel and Sarah mentioned, the part that surprised me the most in this article was the fact that the extremely poor "do not seem to put every available penny into buying more calories." I had always naively assumed that the poor spent whatever money that possessed on food and nutrition. I also found it extremely interesting how the poor spent most of their remaining money on festivals. These two findings demonstrate just how many choices the poor do indeed make each and every day and that they often "choose not to exercise it in the direction of spending on food..." Lastly, I found the section on self-reported happiness very fascinating. Although the poor "feel poor," their levels of self-reported happiness or self-reported health levels are not particularly low. Despite this finding, the poor do report that they are under a great deal of stress. I found these two findings to be somewhat contradicting.
Posted by: Kasey Cannon | 09/23/2015 at 10:46 AM
I believe Banerjee and Duflo have done a very good job of laying out the spending and consumption habits to illustrate the lives of the poor and extremely poor. The paper was very insightful and brought to mind a lot of questions as to the economic solution for the poor. One of the main issues brought up in the paper was the lack of incentive for the poor to save any amount of money or to reinvest in their company. The example of fertilizer was very interesting as poor farmers usually do not use fertilizer even though it has been shown to be a great investment for farmers, and can be bought in small quantities at low cost. The Kenyan program that offered farmers a voucher with a subsidy to buy fertilizer later had great success. Programs like this may be a good idea in developing nations so that the poor will be encouraged to save.
Another interesting point of the paper is the fact that they poor don’t eat as many calories as they should even though they could be spending more on food. The paper suggests that a reason for this may be that the poor fear sickness that will drop their weight either way, making the extra money they spend on food useless. Being underweight leads to sickness, and being sick leads to being underweight. This cycle is much like other cycles seen in this paper. With no capital, the poor can’t bring their businesses to scale, and thus can’t make much money. What does it take to break the poor out of these cycles? Is a big push needed?
Posted by: Mitchell Brister | 09/23/2015 at 11:40 AM
Banerjee and Duflo masterfully illustrate the lifestyles of people living in poverty and extreme poverty. The choices that are made on a daily basis by the people in this study were interesting, and at times, mind-boggling. What may seem to be the obvious choice to some in a circumstance is not necessarily chosen by people living in poor economic conditions. This poor decision-making process can be seen in many instances. The instance in which this process is unmistakable is when a choice for more food is presented. It is mentioned that, “the poorest consume on average slightly less than 1400 calories a day”. It is clear that these people are malnourished, but instead of spending a larger portion of their income on high caloric food, spending instead goes towards the non-essentials such as alcohol and tobacco, and forms of entertainment such as a radio, TV, or a festival. The daily savings that are required to purchase a television could, instead, go towards buying more food that they desperately need. A reason that was given as to why they do not purchase more food is that they are certain to fall ill, which would cause them to lose the weight that was put on by the extra food. However, what they fail to realize, is that the malnutrition they are experiencing is heavily contributing to their immune systems inability to fight off infection and disease, only progressing the process further. This decision-making and ignorance is related to the lack of education that the majority of people living in poverty and extreme poverty receive.
Posted by: Austin Tamayo | 09/23/2015 at 01:20 PM
This article did an excellent job of conveying how poor people spend, receive, and save their money. One would assume that families that are considered poor would spend most of their money on essentials such as food. The article indicates that among the 13 countries within the study the average person living at under $1 per day spends about 50-75% of their money on food. In some of the countries, this percentage is right at 50% which is astonishing. Alcohol and tobacco account for 5-10% of extremely poor people’s budget which seems unnecessary, but these people might need these consumables to cope with their everyday life which might make these consumables necessary. Also, I didn’t realize that poor people in some of these countries spend a portion of their budget on festivals which appears extremely wasteful.
I thought it was interesting that most of these extremely poor people want to save money; however, they have no means to do so. Storing it underneath a mattress or in a pillow case is not sufficient enough to protect their savings; therefore, they feel the need to spend their money right away on something useful. In the short term, this idea can be justified, but in the long term this just keeps them in a state of poverty. Other factors in these poor countries for them to remain in poverty are inadequate investments in education and health. The non-existence of specialized labor and poor health combined with no savings just keep these people in poverty. If health was eliminated as a concern from these people’s lives, I think that this would help alleviate all other concerns and maybe one day end poverty for many of these people.
Posted by: Riley Stout | 09/23/2015 at 01:29 PM
In the last section of the paper, the authors strive to give some insight into some specific economic behaviors of the poor – one question I wished they had tackled is why the poor seem to go it alone most of the time. Throughout the article, the authors provide evidence that small scale and lack of a capital is a common problem that hampers the efficiency and success of poor entrepreneurs. When I was in Ghana during spring term, we could hardly turn the corner without seeing crowds women with babies on their backs competing to hawk bags of plantain chips and bottles of water or young men trying to sell us packs of gum through the bus window. The authors give the example of the women in India making dosas and suggest it would be more efficient for the women to work in pairs. So why don’t these women pool their resources and skills, work together, and share the profits? Why aren’t there more cooperatives or similar institutions (formal or informal) in place that seek to empower the poor and encourage community cooperation and groth? For example, if three of the women making dosas chose to work together, they might be able to produce enough collateral to secure a loan, buy some capital, increase the efficiency of their dosa-making operation, and ultimately their income. With more success, they may even be able to establish a more permanent eatery in their community. Both the UN and the ILO recognize the power of cooperatives in promoting economic and social growth among all groups of people – men, women, and children – particularly in agricultural communities. Is this seeming lack of cooperation another example of market failure or risk spreading behavior?
On a different note, today the BBC is airing a program called “Don’t Panic – How to End Poverty in 15 Years,” in which Professor Hans Rosling says the world is on track to eradicate extreme poverty in the next 15 years. I think it will be really interesting to see how Rosling’s presentation addresses some of the inherent issues faced by the poor noted in this article. Here’s the link → http://www.bbc.co.uk/programmes/b06drxls
Posted by: Caroline Sanders | 09/23/2015 at 02:00 PM
This article clearly presents the decisions the poor must make that many readers, including myself, hadn't thought about before. This is important information when thinking about the next step: what to do to help the poor. What action should be taken first? What issue is deemed the most important one to address? Why choose one over another? The poor have a lack of insurance and often no reliable and safe way to save their money. More likely than not, they do not have proper health or education. One statistic from the article said of the extremely poor in Udaipur, "only 57 percent report that the members of their household had enough to eat throughout the year." Many poor people hold more than one job, but have little to no specialized skill. They are often self-employed but fail to be efficient on such a small scale. The combination of all these factors keeps the poor in an endless cycle of poverty. The solution? That's where the conversation needs to move next.
I would argue that education is one of the most important factors. However, according to the article, "one concern [with investing in education] comes from the mounting evidence ... that public schools are often dysfunctional." Providing good and reliable public education is crucial. If young adults are able to learn specialized skills, it would enable them to secure a better job in the future. Through the school, meals could be provided for the poor and extremely poor children. This would allow the parents to eat full meals without having to worry if their children have been fed. As young adults, they would be better informed to make decisions regarding money and advocating for policy reform. But in order for kids to be in school, they have to be healthy. Thus, health and nutrition could also easily be argued as the most important factor. There are strong reasons to focusing on any of these issues first. The simple fact is that they are connected. It is clear that the poor need help alleviating some of the stress placed upon them every day. What developed countries need to do now is determine the best plan of action to help the greatest number of people living in poverty try to escape it.
Posted by: Rachel Stone | 09/23/2015 at 02:05 PM
This article does a good job representing how the poorest people in the world live. However, I would argue that only having $2.16 or less of purchasing power in some areas is not as awful as we perceive it to be. Many of these people live in areas that don't use money for many things. Instead, they trade in actual physical goods such as crops, tools and things like that.
That being said, it is still important that people in power do all they can to advance these areas into more modern financial and economic times. To do this, they need have enough production of the staple products such as food, tools and basic services. This can be achieved by having the government bring in modern technologies or tools to increase production beyond that of the basic worker.
Should these people successfully increase their production, they can use the excess of labor to learn different trades and further increase their earning potential. They can also send people to schools and pressure the government to increase the level of the poorer schools. The paper discusses this, and it is one of the fundamental elements of a growing economy. Ultimately, increasing both the quality and quantity of education of the poor is one of, if not the, most important things that can help improve the economic and financial outcomes of a region.
Posted by: Kyle Tipping | 09/23/2015 at 02:53 PM
Like we discussed in class on Tuesday, this paper clearly illustrated the effects of low income and how there is great diversity and variation from country to country. While reading this paper, I thought about the three core values of development, specifically self-esteem. As many others have already mentioned, I, too, was initially surprised that the poor were willing to spend their money on a television rather than other basic necessities, such as food. However, then I thought about how the act of buying a television, which is a common commodity to most of us, most likely provides the poor with feelings of self-worth and pride. The ownership of a television boosts their self-esteem by improving their standard of living with a form of joy and amusement. Banerjee and Duflo mentioned that the poor spend their money on entertainment “to keep up with their neighbors” (Banerjee and Duflo, 21). I believe this to be true because when the poor see others owning a television and they do not, they feel worthless and inadequate. Since most of the time the poor feel like an outcast to society, owning a television helps the poor escape for a moment in time, forget about their troubles, and feel like a part of society. This boost in self-esteem could be even more beneficial to the lives of the poor than eating a few more meals that would not greatly improve their health.
Posted by: Ali Coy | 09/23/2015 at 03:05 PM
Often time we hear about how many people in the world live on less than $2 a day but are given no context as to what that means and where these poor people are directing their resources. I thought this article did a great job of explaining all of the different choices that poor people make when it comes to resource allocation and how they go about functioning with so little capital. The article was so detailed in so many aspects of their lives that it almost makes it hard to think of all of the pieces together and really get a feel for the article as a whole and thus I think it is easier to discuss individual questions they addresses. As several people have mentioned above I too was shocked that people didn't allocate their money to maximize calories and instead spent a fair amount on vices and forms of entertainment. I would have always thought that the reason that people went hungry was because they were simply unable to acquire the food needed and not that they chose to buy tobacco, alcohol and have parades while sacrificing quantity of food. I thought the section at the end did a great job of addressing the questions brought up in the piece but the one reasoning I didn't exactly follow was why they didn't eat more. The authors propose that it could be the extra food would not do much because they would ultimately become weak from sickness. While it is true that eating more would not magically prevent them from any future disease it seems as though a healthy diet could help to some degree either mitigate the effects of sickness of help limit the likelihood one would become sick. The other example was that the poor don't have the self control to spend on food and not on vices and entertainment which seems to make more intuitive sense. It is easy for someone like me to say that the person with not much to eat should have no other desires and spend only on food.
The information on education was also interesting to me. In 398 we have been talking a lot about the relationship between health, education, and development and how it is vital for a developing economy to emphasize education as it has positive externalities. From the date we can see that most poor people don't spend money on their children's education and they are unable to determine the quality of the education their children are receiving which is more of a reason for governments and NGO's to place a greater emphasis on education in developing countries because the people themselves aren't allocating their own personal resources to it.
Posted by: Jack Masterson | 09/23/2015 at 03:09 PM
One of the things I found to be exceptionally interesting was the distribution of consumption by the poor. Despite how malnourished/weak the impoverished are, they tend to still spend what little money they have on alcohol, tobacco, and other similar items. I found this interesting because once again this ordeal is a testament to the irrational behaviors of people, and this type of information is crucial to making effective policy to aid the poor in their situation. Not only this, but spending on festivals is also an interesting use of money. Perhaps this attests to the strong cultural connection that the impoverished have. This leads to further questions such as: do the poor have a stronger sense of community than their counterparts? Is there any way to actually measure this and could this have any policy implications?
Similarly, I find it surprising that the levels of self-reported unhappiness are not typically incredibly low for the poor as a whole. I understand the stress and anxiety accompanied with being impoverished are an incredible onus, but I would have thought that their levels of self-reported unhappiness would be lower because of this.
Posted by: Alena Hamrick | 09/23/2015 at 03:29 PM
For people who live in developed nations, it is very difficult to conceptualize how people in poor countries live on one or two dollars per day. This article does a good job of conveying what the extremely poor in different areas of the world spend their money on and what their lives are like. In class on Tuesday, Professor Casey mentioned that there have been students in other universities who have tried to live on two dollars a day in order to see what such a lifestyle is like. That made me think immediately about how one can afford to eat on such a low salary. I immediately assumed that food would be the main source on expenditure for these families. I was surprised to read in this article that food only accounts for 56-74% of the budget of extremely poor urban families and 56-78% of rural poor families. It would seem that people in these countries would spend more of their money not only on more food, but more nutritious, calorie packed food. It was shocking to read that while two-thirds of food expenditure in India in 1983 was on high-calorie grains called millets but that in 2005 that number has gone down to nearly zero. As a result, families are consuming far fewer calories than they used to. This seems backwards to me, as I assumed they would simply try to maximize their calories with the little money they have. I was also surprised to see how high spending was on luxuries such as alcohol, tobacco, and festivals. Spending on alcohol comprises 8% of the budget of the extremely poor in Mexico, which is shockingly high. While we assume those living under $2 per day have little to no options for what they spend their money on, Banerjee and Duflo illustrate that they do indeed have choices, and they do not make the same decisions you might automatically assume they would.
Posted by: Luke Myer | 09/23/2015 at 03:41 PM
As I read, I found the breakdown of how the “poor” spend their money to be fascinating. I too fell into the “common image of the extremely poor … that they do not get to make many real choices.” I think a big reason why so many support this image is the failure to understand how far one can stretch the $1.08 and $2.16 per day. In part because this is based on a 1993 Purchasing Power index (the dollars per day they have now in 2015 is presumably significantly higher) and in part, as mentioned in a prior post, because a lot of what they buy is not necessarily paid for in traditional currency (crops, tools, livestock, etc.) they’re income gives them a surprising degree of choice. The choice to spend such a high percentage on festivals and entertainment seems ridiculous at first, but considering how much the develop world spends it is hard to condemn these decisions. (May be worth looking into the percentage of income the develop world spends on similar luxuries)
I went to Brazil last spring term and will never forget the number and quality of TV’s I saw in what appeared to be a horribly impoverished neighborhood. Based on my experience and this article I am shocked by the amazing efforts people will go through to make room for luxury goods.
Posted by: Benjamin Bayles | 09/23/2015 at 03:52 PM
The most fascinating part of “The Economics Lives of the Poor” by Abhijit V. Banerjee and Esther Duflo was when they discussed how the poor spend their money. I feel like people often believe that the extremely poor would be spending their last penny on food, but Banerjee and Duflo allude to the idea that this is not always the case. People in poverty often spend some portion on their money on “non-necessities.” I thought it was really interesting when they talked about how the spending on festivals is an important part of the budget for the many extremely poor households. Specifically in Udaipur, they give you the facts that more than 99% of the extremely poor households spent money on some type of festival. One may wonder why such a staggering number of extremely poor people are spending money on festivals instead of food. This does not seem “rational” to us. However, thinking more deeply about this, festival could provide a way of relief. In Nepal, festivals are a big part of life, and it is a time for people to come together and celebrate. I would argue that even the extremely poor are making a “rational” decision. While the extra cents could provide more food, maybe they get something more substantive for their soul and not just their bellies. In this way, they may be getting a higher utility by using the money on festivals rather than on food because it may provide them with more happiness. The main take-away that I took from this article can be summed in this quote: “the poor do see themselves as having a significant amount of choice.” What economics comes down to is decision-making, and this article shows that even the extremely poor are making choices, that they also have to face trade-offs, and that they also have different preferences that yield different utilities.
Posted by: Rachana Ghimire | 09/23/2015 at 04:13 PM
The article’s discussion of the economic choices, constraints, and challenges of the poor provided a broad overview of the factors affecting the percentage of the global population that consumes less that $1 a day. Consumption spending at this level seems unimaginable- how many items in Lexington Kroger, or Co Op can we find for less than $1? A major challenge in reading this article was imagining this perspective; however, the author’s breakdown of the categories of consumption expenditure made the discussion more tangible. Like the authors, I was surprised by the percentage food consumption represents to total consumption (~56-78%). The additional discussion about the discrepancy between goods the poor actually buy with this money, and the goods that would maximize their caloric intake was additionally concerning and highlighted to my attention the significance of nutritional education, especially for those on extremely small food budgets. As the authors continued to discuss the issues with public education systems in many developing countries, this highlighted not only the connection between health and education but also the circularity of many issues of poverty: how are the poor supposed to enhance the purchasing power of their dollar(s) to maximize nutrition without sufficient education?
Posted by: Ali Norton | 09/23/2015 at 05:27 PM
Similar to several other students, what stood out the most to me in this article was the way that people in poverty spend their money. When buying food it would make sense to us to spend money on the most nutritional calories that you could afford, but instead they choose to pay more for rice, sugar, salt, and processed food. Part of the decision process is that the poor “see themselves as having a significant amount of choice,” but Banerjee and Duflo point out that the poor are not nearly as hungry for as much food as we would expect. When they chose to spend money on festivals, they are choosing something that leads to more meaning in their life. The statement that I found the most interesting was that when surveyed, the poor reported normal levels of happiness but obviously a higher level of stress. There is a certain threshold that money can be related to happiness, but I never considered those below that threshold to not be significantly different from those with a higher income. In an article I found in the New Yorker, they expand upon the idea that the social connections and religious tradition (festivals for example) help them lead meaningful lives, which is related to happiness. Overall it is a very interesting article in relation to Banerjee and Duflo’s article. http://www.newyorker.com/business/currency/do-the-poor-have-more-meaningful-lives
Posted by: Sarah Schaffer | 09/23/2015 at 05:30 PM
This article does an incredible job at highlighting the characteristics of the poor. I enjoyed how the authors described the ways in which the poor lived, but they also hypothesized their lifestyle choices. To me, the most interesting point made in this article was the analysis of the poor’s consumption habits. Towards the end of the article, I read the question that had been circling in my own head throughout the entire reading. The authors ask, “why the poor don’t eat more?” The nutritional statistics of the poor previously reported are saddening. Among the rural and poor, they spend about a little more than half of their income on food. These left me feeling selfish at the dietary resources I have. However, my feelings were momentarily shifted when I read about the poor’s spending on cultural festivals and other sources of entertainment. I was puzzled by their consumption choices. I found it difficult to understand why they wouldn’t allocate some of the entertainment money on more food. One possible conclusion is that the poor want to exercise their freedom of choice as much as people of developed countries do so. Another plausible conclusion, in my opinion, is due to their lack of education. The 2 percent that the poor invest on education does not provide them with the knowledge they need to make successful decisions in their lives. They not only lack academic knowledge, but common knowledge about optimal and smart consumption and production habits. Maybe if they received more advanced education, they could better understand the benefits of larger food investments and smaller entertainment investments.
Throughout the article, I kept drawing on my volunteer experience with underprivileged and impoverished kids in Camden, New Jersey. I worked at an after school care program with elementary and middle school children. One group of boys really stood out to me. During the winter months, they were still wearing the shorts they wore throughout the summer and fall. I could never understand how they did not have one pair of pants to keep them warm. If they had shorts for the summer, couldn’t they have pants for the winter? One day they were telling me about the large amount of money they were saving to spend on a game boy. My immediate thought was if they could save coins and dollars for a plastic piece of entertainment, where was their smaller sum of money for pants? They were more focused on the idea of this technology than being warm and healthy. I feel that this experience relates to the idea presented in the article. The poor are oddly fixated on luxury goods and are willing to sacrifice necessary items for them.
Posted by: Emily Rollo | 09/23/2015 at 05:37 PM
A lot of my fellow classmates have been posting about their perceptions of what the poor spend their money on in their comments, particularly how entertainment purchases are unexpectedly high. As Rachana says, it doesn't seem rational at first to us because we place such an emphasis on meeting the basic needs of food, water, shelter, and health (in general). Entertainment is a seriously under-appreciated basic function of life and doesn't seem to get full credit for the important role that it plays in human life. Anyone who has a taken a poverty class here at Washington and Lee has read the noteworthy works of Martha Nussbaum . Her works are inspired by Sen and his capability approach as we discussed in class yesterday. Nussbaum takes Sen's approach and outlines the 10 core human capabilities. Of course there are the ones that one would probably expect to be on there - life, bodily health, integrity. But the ninth, and in my opinion, the most underrated is "play - being able to laugh, to play, to enjoy recreational activities". Play is essential to human life, just not necessarily essential to what we think of as survival on a daily basis; it helps foster relationships, create a high self worth, and relieves stress, among many other things. Without play, humans cannot be as productive or efficient as they could be. Thus, it does not surprise me that the poor are spending a larger proportion of their income on festivals and other forms of entertainment. Play has a lot of positive externalities which often go unnoticed when trying to measure development and understanding the poors's choices.
Posted by: Jacqueline Carson | 09/23/2015 at 05:50 PM
This article does a great job of giving insight on how families that qualify as being below the poverty line spend their money. It is hard to conceptualize what living on $1-$2 a day, but Banerjee and Duflo show how families across the world do it. One part that stuck out in particular was how the poverty stricken families no matter the geographic location spent a big portion of their earnings on festivities. It comes to no surprise to me that tobacco and alcohol are high expenses, but the festivities portion of their money reminded me of what we discussed in class on tuesday about the three parts of development: levels of living, raising wellness and freedom. Although these families are below the poverty line, they are still willing to spend a portion of their money on things such as weddings. Although, they can't afford luxury items, they all value meaningful events in life. These events bring wellness to their lives that nothing else can. They don't spend money on movies or video shows, they choose to spend their money of events that bring the most happiness to their life. Although they are below the poverty line and struggle to eat food on a regular basis, they all choose to take part in these memorable events. Some people believe that raising the levels of living will lead to bigger freedom and wellness, which might be the case, but the people that took part in the survey show that raising freedom and wellness is more important that just increasing the levels of living.
Posted by: Buck Armstrong | 09/23/2015 at 06:07 PM
I found Banerjee and Duflo's research report extremely insightful and thorough. From topics ranging on the poor's living arrangements, how they spend and earn their money, the market and economic environment available to them, and then their infrastructure choices, Banerjee and Duflo give a description of the choices and sacrifices that the poor encounter everyday and their numerous wise and thoughtful solutions to survive at such low income levels. While we take so many things for granted in our day-to-day routines, nothing is guaranteed for the poor and their ability to run a quick cost-benefit analysis can be the difference between life and death. I was obviously fascinated to learn the different reasons that the poor and extremely poor are pushed to act in certain ways based on their situation, however, I found the psychological aspect, the fact that "the poor certainly feel poor, [but] their levels of self-reported happiness or self-reported health levels are not particularly low," extremely uplifting and powerful. The little stress reported throughout a year was a result of health problems, mainly from needing to cut meals, and not because of their situation. It definitely sent a powerful message to me for the stresses and unhappiness that I face in no way parallels the pain that these individuals endure on a daily basis.
I also believe that the facts reported in this research will help to debunk many misunderstandings and stereotypes of the poor. After reading the stories and statistics, these individuals are dealt a terrible situation in which they work countless hours, making very little money, in order to provide for their families, all while living relatively happy lives. Economically speaking, these peoples' actions and mindset are fascinating.
Posted by: Hugh Gooding | 09/23/2015 at 06:11 PM
From this paper you can see that the characteristics of developing countries incentivizes the poor and extremely poor to not fully utilize their resources and make the most efficient decisions. The development report gives three principles left out of the standard economic model. The first principle, people think automatically. Fast decision-making can be seen in the paper when the poor are selecting their food. A closer inspection of their food selection reveals insufficient utilization of nutrients per dollar. Developing countries seem to foster impulsive decision-making. The second principle, humans think socially. In the paper this can be seen by the tendencies of poor migrant workers to not stay away from home for too long. The lack in financial institutions and infrastructures in developing countries creates the need for a social credit system, which would make any long work migrations disadvantageous. The third principle, people think with mental models. This can be shown with the reluctance of poor farmers to use fertilizer again after seeing an increase in their crop production after use. The mental model they construct is that the ability to save small sums of money needed for fertilizer doesn’t outweigh the need for immediate consumption. The characteristics of developing countries yield to an increase in these 3 principles for the poor and extremely poor.
Posted by: Davis Turner | 09/23/2015 at 07:05 PM
Like most people have said, I think this article does a great job of illustrating how the poor make choices and the environments that they make these choices in. One thing I really liked about this reading is the way that the authors provide possible explanations for why the poor make certain decisions. For instance, when reading this, a cynical person might be quick to criticize the poor for their low levels of “good consumption” instead of spending on alcohol, tobacco, and festivals. A cynical person might also be quick to attribute this behavior to a lack of self-control. However, Duflo and Banarjee present the possibility that eating more may not help them much in the long run because of the risk of disease. They also provide evidence that this behavior cannot be explained by a lack of self-control because the poor do spend on other things that require saving, namely entertainment.
The authors talk about how self-reported happiness levels are not low among the poor. This got me thinking about the relationship between poverty and happiness, which was something that was constantly on my mind while volunteering in Belize through the Shepherd Program. During my eight-week stay there, I spent an entire week doing survey work with the Red Cross and Florida State in San Mateo, an extremely poor neighborhood on the island. As I went door to door and talked to the people living in the neighborhood, I encountered so many people who appeared to be happy and optimistic, despite the harsh conditions they were living in. This was extremely surprising to me for obvious reasons, and is something that I am still grappling with. Another thing worth discussion is the relationship between poverty, happiness and meaningfulness. Here’s a cool article that Professor Pickett sent me recently on the topic: http://www.newyorker.com/business/currency/do-the-poor-have-more-meaningful-lives. I would love to know other people's opinions on all of this.
Posted by: George Park | 09/23/2015 at 07:12 PM
After reading the article and my classmates' comments, I want to bring a bit of different perspective on the article to the discussion. I too found Banerjee and Duflo's careful study of the habits of the poor and extremely poor to be very interesting. Their findings in the data certainly challenge assumptions that are made by policy makers, particularly with regard to the degree of choice that the poor have (as Daniel pointed out). Given our discussion last week on the need for models within economics, I understand the authors' angle of looking at a very broad swath of people.
However, I do not particularly like the way in which they discussed their data, their sweeping generalizations about the decisions of the poor, or their somewhat degrading tone in the article. Their section headings in the conclusion of the paper, "Why Don't the Poor ____?," struck me as particularly derogatory. Their diction barely avoided demonizing the poor in favor of presenting their data in a way that set apart the poor by reinforcing the concept of a 'culture of poverty'. A topic discussed widely in my Poverty and Human Capabilities 101 class, a 'culture of poverty' implies that there is a uniform belief and value system surrounding all poor, indiscriminate of their differences. The authors challenge many of the common misconceptions regarding the 'culture' shared by people who are impoverished, but they failed to discuss the data in a way that diverged from creating a differently defined 'culture'.
I was also disappointed to read their expertly detached discussion of "alcohol and tobacco" as well as "calories." By the way these topics were discussed in this paper, one would think that all people were born with an inherent understanding of addiction and caloric consumption. While straying from many common assumptions in economics, the authors neglected to challenge the assumption of rational decision making with regard to alcohol/tobacco and calories. They made no mention (or if they did, it escaped me) of the possibility that these poor might be addicted to alcohol or tobacco, which would of course impact their consumption habits. Further, they neglected discussing food beyond its caloric value -- the cultural norms surrounding eating, or the ease and effort required in food preparation. They made an offhand mention regarding the possibility of good taste/flavor affecting people's food choices, but this wasn't explored nearly as thoroughly as people's decisions to spend their money on festivals, or other activities that (presumably) bring them enjoyment.
Overall, I recognize this paper's significance in reporting the economic trends among impoverished people. I am disappointed, however, that the authors failed to challenge, but some points successfully reinforce, some of the prevailing jargon and manner of discussion surrounding poverty.
Posted by: Lauren Howard | 09/23/2015 at 07:17 PM
I would first like to point out how taken aback I was by the fact that such large portions of the global population live on 1-to-2 USD per day, accounting for purchase parity. It truly is hard to envision how there is room for discretionary spending outside of food, particularly when supporting such relatively large families.
The point I'd like to discuss is on p. 12, when the authors discuss the lack of specialization among poor families across the globe. Specialized skills are not sought out, as people may move from job to job to pick up income wherever they can. Many of those in agriculture do not do it to the point of making a full living. Although development economics is often discussed within the framework of large structural investments supporting education, infrastructure and other critical features of a developed economy, perhaps programs that mirrored technical colleges in the U.S. could be beneficial. Learning the specialized craft of being a mechanic or tailor could be the small catalyst that significantly increases someone's earning potential. It is important to note, however, that this could be a risky endeavor. There would be a significant opportunity cost should the individual find limited demand in the market for her specialized skill set.
Posted by: Andrew Head | 09/23/2015 at 07:41 PM