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Poor Economics

A Radical Rethinking of the Way to Fight Global Poverty

By Abhijit V. Banerjee and Esther Duflo
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  • Contains 10 key ideas
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Poor Economics by Abhijit V. Banerjee and Esther Duflo

Poor Economics (2012) is investigating some of the biggest challenges poor people face. This book provides the reader with an understanding of why there still is so much poverty in the world, and why many of the measures usually implemented do not help. Based on these insights, the authors offer a number of concrete suggestions to demonstrate how global poverty might be overcome.

Key idea 1 of 10

Economists seek general solutions to global poverty, but these don’t deal with the problem effectively. 

It’s a sad fact: poverty causes millions of deaths every year. Equally sad is the fact that we have yet to find an effective solution to this devastating problem.

One of the reasons might be that economists dealing with the problem tend to look at it in the wrong way, focusing too much on “big” economic questions like, “Do developing countries need more or less help from outside in order to grow?”

Such general questions tend to generate ineffective debate.

One camp argues for more development aid to get these countries on track, as they’re not able to do so on their own. Economist Jeffrey Sachs claims that if rich countries would spend $195 billion per year on development aid, in 20 years (i.e., by 2025), poverty would be eradicated.

Then there’s the other camp, which emphasizes the negative consequences and ineffectiveness of outside interventions, claiming that it’s more helpful to leave developing countries alone.

Clearly, it’s difficult to come up with a conclusive answer to such a general question. Moreover, debating it does nothing to solve the problem of poverty.

Of course, some countries appear to prove the effectiveness of development aid. For example, following the Rwandan Genocide, Rwanda received a lot of money and their economy subsequently boomed. However, the situation’s complexity renders it impossible to know for certain whether Rwanda’s success was due to the aid or to other factors.

Furthermore, a single case isn’t enough to prove a theory’s accuracy: data from over 100 countries suggests that those that had received aid didn’t grow anymore than those that didn’t.

Both of these arguments are manifestations of an economic reasoning that looks at the problem of poverty in the wrong way. And, in the end, such arguments will not help to solve it.

Rather than spending time and energy on considering these big questions, it’s more useful to look more closely at specific measures and to evaluate why they do or do not work.

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