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09/11/2016

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Charlotte Braverman

In their piece “The Economic Lives of the Poor,” Banerjee and Duflo illuminate many of the harsh realities that affect those living in developing countries. Perhaps the most powerful aspect of this work is the degree to which they are able to convey how hard working, adaptive and rational these individuals are. For me, the two most salient portions of the article are those that discuss employment opportunities and the financial decisions which the impoverished face. Ultimately, the two seem inextricably linked to the banking systems and credit markets, or lack thereof, existent in these communities.

Compounding the sheer scarcity of economic resources is the lack of a formal and secure market for saving and lending. In this way, Banerjee and Duflo illustrate that it is actually quite rational for someone with limited economic resources to forgo saving in order to make sure their money is used in a way that is utility maximizing. Alternatively, they run the risk of having it get stolen or lost. Without a trustworthy institution to deposit their money into, people are forced make tough decisions about how to protect their financial resources.

Corollary to this issue of saving is the issue of lending which seems to bleed into the employment opportunities for those living in poverty. Banerjee and Duflo emphasize that though people tend to be entrepreneurial and proactive in seeking out employment opportunities, with many people working multiple jobs, the job market is oftentimes structured in a terribly inefficient manner. The women making dosas in South India are a strong example of this. This seems to be due in part to the inability of individuals to raise capital and invest in their businesses. Instead they are constantly scraping by, forced to make ends meet by doing whatever jobs are available.

Ultimately, this central issue of saving and lending led me to think about microfinance, something we will focus on later in the term. Microfinance appears to offer a great opportunity to invest in communities while allowing them to develop in a self-sufficient way, providing jobs and facilitating the development of a more robust job market. This is something I am looking forward to learning about in the coming months.

Lilly Grella

Two years ago when I first read this piece by Banerjee and Duflo, I was stuck on the idea that those people experiencing extreme poverty are spending less than 70%(and in some cases significantly less than 70%) of their income on food. Even further, they oftentimes buy items with a low calorie to dollar ratio. At first glance, it seems silly to skip a meal to be able to afford festivals, weddings, and other forms of entertainment. But it is important to step back and realize that there is an aspect to humanity that comes with things other than food. The happiness and the ability to be content with life are just as important as physical wellbeing. It is true that most of the people surveyed were underweight according to the BMI scale, but the ability to have a TV or a wedding allows them to connect with their own humanity and other human beings.
As I read this piece for a second time rather than being drawn to the spending habits solely, I immediately took note of just how multifaceted the economic lives of the poor are in general. There was never a specific answer or a simple response to the issue of extreme poverty. The complexity of the issue and the steps to go through to just begin understanding the forces at play in the lives of the individuals experiencing extreme poverty are overwhelming. It seems as though this paper is just the beginning of the investigation into the economic lives of the poor.

Tanpreet Hunjan

Whilst reading “Economic lives of the poor” I felt prepared for what the statistics and the trends were about to say regarding living in extreme poverty. Visiting my grandma in India every 1-2 years and classing India as my second home I was brought up with both a cultural understanding and appreciation of India and England. I understand many of the traditions, cultures and pressures that many Indian families in poverty feel. The feelings that relative poverty invoke to me are also apparent with people experiencing absolute poverty.
What this paper touched on was that in the 13 countries that were studied, food represented somewhere between 56% and 74-78% of a household's budget in rural and urban areas. At the same time, the median household spends 10% percent of their annual budget on festivals.
This part of the paper really spoke to me in regards to my culture and my personal experiences. Being Indian myself I have attended many extravagant weddings and festivals held by families who were spending more than their means on such events. My father, for example, grew up in Kenya living on less than $2 a day but had such an excessive wedding. Banerjee’s response demonstrates confusion as to why they were not more rational with their money and on their expenditures. However, his report also reflected higher happiness levels among those that were poor. In this case utility trumps rationality. This is understandable when you consider that even the poorest people need enjoyment in living their day to day lives.
For me there are 3 main reasons why such spending on festivals/ weddings occur in South Asia:
• Weddings in South Asian cultures aren't so much about the individuals involved rather than about societal pressure. It's a show to your community, almost a peer pressure, to uphold an extravagant wedding so that they are not talked of badly.
• In particularly uneducated areas of South Asia more focus is given to daughter’s weddings as opposed to their education. This is seen in the paper where the expenditure on education is only 3% in Pakistan.
• The expensive dowry system is meant to make it so that the daughter’s future is invested in and secured through selling her marriage rights off to a man who will be able to provide for her in the future.

Tanpreet Hunjan

Spencer Payne

As someone who has never taken a Poverty class, Banerjee and Duflo illuminated many facets of poor people’s lives that I had never considered. But while I found their discussion valuable, I want to focus my comments on one issue in particular: migration.

While I recognize that my stance may a bit controversial, I would like to declare out the outset that, in my opinion, a gradual migration away from seriously disadvantaged areas is imperative to raising the poor out of poverty. Let me explain.

A worker’s real wage equates to his or her marginal product of labor — that is, the amount of money that someone earns is a function of the value of the product(s) that he or she produces. Therefore, to earn more, economic theory urges workers to increase their productivity. With this in mind, Banerjee and Duflo suggest a solution, citing a study that finds “some improvements in nutrition have been credibly linked to increase productivity” as it is also linked to improved overall health (Thomas et al, 2004).

Only I do not agree that a change in diet alone will lead to higher wages for those in poor communities. Instead, I would argue that the only way poor people can raise their real wage is to increase their productivity and then migrate permanently. Like the authors say, many of these poor communities are isolated, particularly those in rural areas. So even if we suppose that eating better increases productivity, I would argue that the labor markets in extremely poor countries would be unable to reward such behavior. Short-run demand is likely constant in countries like Tanzania, meaning that if an entrepreneur is able to produce more of a product, holding all else equal, more product will not be purchased because everyone’s budget constraint will have remained constant. I therefore suggest that those living in poverty act in a way to increase their human capital and then migrate to a labor market that can adequately compensate them for their skills. Eat well, invest in education, and — for the most productive Tanzanians — perhaps consider moving to Kenya.

Jim Grant

The article “economic Lives of the Poor” By Banerjee and Duflo produced eye opening research in the spending of households living within poverty. Drawing many riveting facts and anecdotes the article piqued my interest to learn more about the purchasing power and the decisions made by communities in poverty.
Within the data was the surprising statistics about how much is spent on consumables. Not only were people spending most of their income (about 55%-75%, depending on the area) on food, but a good deal was spent on non-essentials (depending on your perspective) like alcohol and tobacco products. Also those numbers account for food bought for festivals, ceremonies, weddings etc. The sad reality is none of these households are able to make savings because close to none of their earnings can go into “durable goods”. In most of the countries mentioned less than 14% own a bike and close to no households had chairs/stools/tables, a watch/clock, a fan, a sewing machine, a motorized vehicle or a bullock cart. It makes me think of the graphs we looked at in class where we noticed the quality of life increased the GDP of certain countries.
Another anecdote on this chain of thought that genuinely surprised me was when they were talking about people in poverty taking up second jobs mostly as entrepreneurs. A very interesting point was made that since these entrepreneurs go out and buy their products independently to resell, and obviously there’s no big business entities involved in these transactions. But, they made the connection that because there are all these individual entrepreneurs, the jobs created (if any) would be overstaffed by family. Since no jobs are being created, they said, it in turn perpetuates the business of these, “petty entrepreneurs”. Poverty is cyclical and self-inducing, but this to me was an interesting point that the writes had noticed, and expanded my perspective to studying poverty.

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