Book Review on Poor Economics Essay Example

are hot, infertile, malaria-infested, and often landlocked; these factors, however, make it hard for them to be productive without an initial large investment to help them deal with such endemic problems. But they cannot pay for the investments precisely because they are poor -- they are in what economists call a "poverty trap. " Until something is done about these problems, neither free markets nor democracy will do very much for them.

The basic idea of a nutrition-based poverty trap is that there exists a critical level of nutrition, above or below which dynamic forces push people either further down into poverty and hunger or further up into better-paying jobs and higher-calorie diets. These virtuous or vicious cycles can also last over generations: early childhood under-nutrition can have long-term effects on adult success. Maternal health impacts in utero development. And it’s not just quantity of food – quality counts, too. Micronutrients like iodine and iron can have direct impacts on health and economic outcomes.

But if nutrition is so important, why don’t people spend every available extra cent on more calories? From the look of our eighteen-country dataset, people spent their money on food… and festivals, funerals, weddings, televisions, DVD players, medical emergencies, alcohol, tobacco and, well, better-tasting food.

Low-Hanging Fruit for Better (Global) Health?

Every year, nine million children under five die from preventable diseases such as diarrhea and malaria. Often, the treatments for these diseases are cheap, safe, and readily available.

So why don't people pick these 'low-hanging fruit'? Why don’t mothers vaccinate their children? Why don’t families use bednets, or buy chlorinated water? And why do they spend such

large amounts of money on ineffective cure instead? There are a number of possible explanations. These can include unreliable health service delivery, price sensitivity, a lack of information or trust, time-inconsistent behavior and the simple fact that the poor may not be able to tackle big, chronic illnesses. None of these reasons explains everything in isolation.

But understanding what stops the immediate spread of our ‘low-hanging fruit’ – bednets, de-worming medication, vaccines, chlorinated water – is an important step in improving global health, and may finally help to eliminate health-based poverty traps.

Top of the Class

Over the past few decades, children have flocked into the schools, but schools seem to have delivered very little: teachers and students are often absent, and learning levels are very low. Why is this happening? Is it a supply issue, where the government needs to provide children with better schools, better textbooks, better teachers and better facilities?

Or is it demand, where parents would lobby for quality education if and only if there were real benefits? There seems to be a problem with both. For example, parents expect both too much and too little from the schools: government jobs for those who graduate from secondary school, and nothing for the rest. Teachers seem focused on teaching small elite, and undervalue the regular students. These expectations affect behavior and generate real world waste. But the good news is that these expectations and these real world outcomes can be changed CHAPTER 5: Pak Sudarno's Big Family

Most policy makers consider population policy to be a central part of any development program. And yet, unexpectedly, it seems

that access to contraception may not be the determining factor in the poor's fertility decisions. So how can policy makers influence population? Instead of contraception, other aspects like social norms, family dynamics, and above all, economic considerations, seem to play a key role, not only in how many children people choose to have, but how they will treat them. Discrimination against women and girls remain a central fact of the life for many poor families.

Going inside the "black box" of familial decision-making - that is, understanding how and why decisions are made the way they are - is essential to predicting the real impact of any social policy aimed at influencing population.

Barefoot Headgefund Managers

The poor face a huge amount of risk - a friend of ours from the world of high finance once noted that they're like hedge fund managers. These risks can come from health shocks - like an accident - or agricultural shocks - like a drought - or any other number of unexpected crises.

Often, the poor just don't have the means to weather these shocks, and so they get pushed into poverty traps. The steps they take to protect themselves form these risks are insufficient and often costly: they choose less profitable and less risky crop, they spread themselves too thin across a great number of activities; they exchange favors with neighbors. Yet all this doesn't always even cover large shocks.

Microfinance

The fact that banks are often unwilling to lend to the poor, coupled with the extremely high interest rates moneylenders charge, was a call to action for the founders of

microfinance.

Enforcing credit contracts involves collecting extensive information about the borrower to ensure repayment. The high cost of gathering this information makes neighborhood moneylenders the easiest source of credit. Microfinance institutions rely on their ability to keep a close check on the customer, in part by involving other borrowers who happen to know the customer: This was a recipe for enormous success, there are more than 200 million microfinance borrowers today. Many MFIs were unwilling to evaluate whether their lending programs were helping the poor.

The MFIs were financially sustainable and borrowers kept coming back, which the MFIs saw as proof enough. When an Indian MFI, Spandana, was rigorously evaluated, there was clear evidence that microfinance was working. People in Spandana neighborhoods were more likely to have started a business and made large purchases. However, there were no detectable impacts on women's empowerment, spending on education or health, or in the probability that kids would be enrolled in private schools. One of the limits of microfinance is its inflexible structure and focus on "zero default. It may not be an effective borrowing channel for entrepreneurs who are willing to take risks and will go on to set up a large business. More established businesses do not find it that much easier to get credit. In particular, they run the risk of being too large for the traditional moneylenders and microfinance agencies, but too small for the banks. We need to see the equivalent of the microfinance revolution for small and medium firms; figured out how to do it profitably on a large scale is the next big challenge for finance in developing countries.