Poor Economics

This book felt a bit sad because a lot of the things that it described were things that I noticed in my birth country, Bangladesh. I liked this book of its truthfulness, but I will admit that some things were also things found in my sociology book. Anyway, here are my notes of the book “Poor Economics”: the numbers represent physical book page numbers.

• 123: “Yet most societies rely on the goodwill of the parents to make sure that children get fed, schooled, socialized, and taken care of more generally. Given that these are the same parents who contrive to let their little girls die, how much faith should we place in their ability to get this done effectively?”
• 128: In reference to all the facts that show men are selfish and don’t care about their children: “At least one of the two of us is inclined to interpret this evidence as saying that men are just a lot more selfish than women.”
• 146: People are more likely to act good (e.g. paying for someone) if they themselves can make that change
• 152: Governments typically do not intervene for small scale injuries
• 153: Asking questions about people’s health increases likelihood of them getting health insurance
• 153: Trust increases likeliness of accepting insurance
• 154: Pay now get returns later are very rarely taken positively.
• 161: In long run, poor places that had more banks form became poorer. Loans subsidized by government often become target for political agendas.
• 162: Informal loans are very often returned, though there may be some delays.

• 162: “One lends only to the rich” (French saying)

• Microfinance is more about how it is done: lending to groups and holding entire groups accountable of each other, with weekly updates and payments.
• 169 Very little quantitative data on effectiveness on microfinance during the time of writing the book
• 171 Places with microfinance more likely to start business and purchase durable goods. But not drastic effect, especially on family, health, and education. Microfinance works, just not significantly
• 173 Whether people borrowed from local individual money lenders was unaffected by presence of micro finance institutes in the area
• 173 Microfinance are typically inflexible, which makes certain needs unrealistic (such as loans for education)
• 174 People more likely to do riskier (but potentially more beneficial) projects if loan repayment is later, but default rates were higher
• 175 As long as people have weekly meetings with loan officers, joint liability has no effect on repayments; but if weekly meetings not performed, default rates increase
• 176 People repay because other people repay, so once people stop, it is hard to get them to restart
• 176 In many cases (“many”, not necessarily “most”), political intervention and anecdotal headlines such as farmer suicide were used against MFIs, despite being preven
• 178 Cases exist where some businesses are too big for MFI, but too small for regular bank

• 180 More and faster court action in collecting debt increased amounts of loans handed out, but this often helped bigger firms get loans than smaller firms

• 183 Poor people often build houses brick by brick; as distance to country side is increased, commonality of unfinished houses increases
• 185 One common theory is poor people are impatient
• 186 ROtating Savings and Credit Association ROSCA is common in many poor countries
• 186 Smaller saving organizations exist in poor countries and also in US among recent immigrants
• 188 Regular banks typically have minimums and bar the poor, or have hefty transactional fees. Many don’t even provide interests
• 189 Things like bKash becoming more common (book talks about M-PESA)
• 190 Many still don’t use this small saving account even if it were free
• 192 When there are savings at hand, it seemingly ‘disappears’ for the poor (people needing it, something coming up). Farmers who immediately spent extra money on fertilizer, seemingly did not ‘something come up’.
• 193 Vouchers for fertilizer right after harvest increased fertilizer use much more than making fertilizer cheaper (even when voucher was same price)
• 196 People are aware of self-temptation, which is why they often use ROSCA and also take money from MFI just to put it into saving account, since MFI does the accountability of forcing people pay weekly

• 198 “There ar ways to get around self-control problems, but to make use of them usually requires an initial act of self-control”

• 199 Poor people don’t necessarily give in to temptation more than the rich; the rich already has their temptations met. When both give in to buying tea, the rich don’t suffer; the poor does. Additionally, a lot of systems are already in place for the rich: social security, automated bank deposit, etc.
• 201 “Those who feel that they have nothing to lose, by contrast, will tend to make decisions that reflect that desperation.”

• 210 There are far more entrepeneurs (people who have their own businesses) in poor countries than in rich

• 213 Poor countries have more businesses, but most of such businesses are puny (0 to 1 employees hired per business), and many often die out
• 214 Microcredit encourages small businesses, and such businesses don’t make huge profits
• 215 Difference between overall return and marginal return. Marginal return is a a rate of change $\Delta$, wheras overall return is more so cumulative. Many of the SUPER small businesses start of with low overall return, but high marginal return (making the most out of every dollar). As their businesses grow, ther incomes are multiplied, but how much they make out of every dollar is lesser and lesser.
• 222 Certain threshold of investment has to be reached before business can start scaling up again
• 223 In many cases, getting on a different production-investment curve requires threshoulds of 100×
• 224 Business training programs by MFIs improved business knowledge, but no change in profits/sales/assets

• 224 Teaching simplified rules of thumbs helped increase profits by simplifying their lives

• 227 Most poor parents don’t see their children becoming entrepeneurs, but more so government workers that have stability
• 227 Most middle class have stable jobs (weekly/monthly pay) than poor people (daily pay)
• 230 “A good job is a steady, well-paid job, a job that allows a person the mental space needed to do all those things the middle class does well.”
• 231 Moving into cities is great, but most poor don’t permanently move, and do half-and-half between city and village

• 232 Having connections, family, etc. already in a city significantly helps people in villages move into the city

• 236 In Uganda, only 13% of funds given by government to schools actually go to schools

• 237 However, when news about the lack of funding (above) was released, 80% of funds started flowing into schools

• 245 Simply threats of audits can reduce corruption. Even fear of “fake audits” is enough.
• 248 Inviting people to lead and speak out significantly increases attendance, speaking participation, and minority participation (especially poor)
• 248 Letting children take feedback paper back to parents than letting government do it significantly increased criticism of government.
• 250 Even when government is supposedly dominated by majority and elites, minorities (women in this case) still did a lot more for the local. Women leaders are less inclined to take bribes. Women leaders are less educated and less politically experienced, but they do overall do more change than male counterparts
• 251 Votes are given more towards candidates who claim they’ll do more for the voters of that specific region, than for voters everywhere.
• 252 Winners from dominating caste group are often winners, and are often more corrupt
• 252 Simply letting people know to vote on development issues than caste reduced caste voting from 25% to 18%
• 253 Revealing audits publicly improved elections of honest candidates by 13% (and disentivized corrupt candidates by 12%)
• 256 Corruption and neglect is more severe in cases where: people aren’t on board with the change (eg helmets), distribution to the people is more valuable than what is being paid for (free hospital beds to everyone often leads to bribery to get earlier in queue), and bureaucrats are underpaid, overworked, and not well monitored
• 258 Ideology, ignorance, inertia
• 260 Asking to do clear concrete task yields higher success rate
• 261 Reserving seats for women in government, and then un-reserving them, still allowed incumbant women to be re-elected. In villages that had prior women leaders, men favored women speeches, than in villages that had no prior women leaders.
• 262 Seeing improvement in their lives by the government led to higher voter turnout rate (PROGRESA case)
• 263 “voters are indeed prepared to support those politicans who take seriously the job to design and explain social policies” (Wanthekon 2006 study)

268 Five key lessons:

1. Poor often lack critical pieces of information and believe things that are not true. Examples: benefits of immunization, education, quantity of fertilizer to use, how HIV infection works, actions of politicians. Being in the dark has consequences: voting for the corrupt, unprotected sex with HIV infected individuals, not getting complete sequence of immunization. Traits needed in information campaign: Give information that is not necessarily known, do so in attractive simple way (film, play, TV, etc.), come from seemingly credible source.
2. Poor bear responsibility for too many aspects of their lives. Examples: wealthy don’t have to worry about chlorine in water, poor can’t afford fortified breakfast cereal, poor have no automatic saving mechanism, wealthy have social security so less need of children and luck. Making good solutions easy helps a lot: making fortified/good stuff cheap, making fortified things be default, etc.
3. Some markets are missing for the poor / poor face unfavorable prices in them. Example: Interest rates for savings is not high enough to negate cost of withdrawal and money management, loan interest rates are higher for the poor, health insurance is non-existent. Example solutions: Microcredit, electronic transfer system, unique identification for proof of payments, giving out cheap things for free (since managing funds for payments just makes it more unprofittable). Key note: These services don’t come into exist naturally; governmental or external support needed for creation.
4. Poor countries are not doomed to failure. Most sources of failures are: corruption (elites attempting to hold on to power), 3I’s (ignorance, ideology, inertia), over supporting certain ideas without evidence (dams, barefoot doctors, etc.). Lot of opportunities for improvement exist: getting feedback from people who are affected by inviting them, monitoring/auditing government, sharing audits with people, publicizing information on public services properly.
5. Stopping self-fulfilling prophecies. Examples: children give up on school when teachers/parents signal they aren’t smart enough, nurses don’t show up to work because no one expects them there. Solutions: show counter-examples (female village leaders, teachers telling students that their job was just to educate), continue momentum (using self-fulfilling prophecy for growth).

• 272 Small actions do have massive impacts. Evidence: deworming tablets, better nutrition, etc.
• 273 Eradicating poverty is not a single action. Poverty has existed for thousands of years, and we’ll likely have to work decades to get rid of it.