"Poor Economics" is written by Abhijit Banerjee and Esther Duflo, the couple who won the Nobel Prize 2019 in Economics alongside with Michael Kremer. All three of them, they won the Nobel Prize for their on-going effort and studies in alleviating global poverty. This book can be treated as a summary of their decades-long work. My verdict of the book? Short answer is, it's really good.
I won't go into details of the book here. Actually there is a Youtube video which in my opinion gives a excellent overview of the book - How to break away from poverty? [2019 Nobel Economics Prize explained]. It is in Mandarin, but it has good English subtitle. Furthermore, there is a full playlist of the courses given by the authors themselves in MIT which entirely based on the book itself. In this blog entry, I just gonna go through my thoughts about the book.
The thing that I like the most about the book is that, it doesn't apply clichés to the poor. The one thing to take away from the book is that no assumption should be taken for granted. Every assumption needs to be carefully tested and they did just that - performing randomized controlled trial (RCT) and conducting social experiments around hypothesis. I still can't believe that they were the first people who used RCT to test different social policies. It sounds so intuitive and so surprising that nobody before them had actually applied the method in practice. These experiments are no easy tasks either as it normally involves active tracking over decades or may be over a generation. Their willingness to do the grunt work at ground zero, to interview the people, to cooperate with the local organizations, and understand the problems with a bottom-up approach is very admirable.
Throughout the book, it discusses many factors that could lead to poverty. To think the poor are poor because it's always their own fault, whether be they are lazy, they are short-sighted and lack planning for the future, they always seek for instant gratifications, etc., is a fatal flaw. It teaches the readers that, to view the poor from our comfortable couch, we have to ask ourselves, what privileges do we have. Bottom-line, the way we think aren't so different than the poor. When we ever make bad decisions, we have safety net to fall back upon. But if the poor makes bad decisions, the ripple effect gets amplified.
To quote a paragraph from the book:
Our real advantage comes from the many things that we take as given. We live in houses where clean water gets piped in - we do not need to remember to add Chlorine to the water supply every morning. The sewage goes away on its own - we do not actually know how. We can (mostly) trust our doctors to do the best they can and can trust the public health system to figure out what we should and should not do. We have no choice but to get out children immunized - public schools will not take them if they aren't - and even if we somehow manage to fail to do it, our children will probably be safe because everyone else is immunized. Our health insurers reward us for joining the gym, because they are concerned that we will not do it otherwise. And perhaps most important, most of us do not have to worry where our next meal will come from. In other words, we rarely need to draw upon our limited endowment of self-control and decisiveness, while the poor are constantly being required to do so.
This is a book that every policy maker must read. I would also argue that this is a book that everyone should read too as a personal finance book. The main reason why every policy maker should read it is obvious, as it talks about regional experiments on different policies, touches on immunization programs, different solutions for clean water supply provision, education etc., that were conducted in various places such as South Asia and sub-Saharan countries. On the other hand as a personal finance book, it lays out how the poor think and react, the decisions they taken, etc. which I see these as an opportunity for introspecting and questioning our own tendencies and biases.
Although some key points in famous personal finance books like "Rich Dad Poor Dad" are useful, it also leans too much onto reasoning that being poor must be your own fault and the only way to become rich is to change your own mindset. And the other thing that I don't like about this kind of books that is that they always want to sell you something, an ulterior motive, whether it is another book, a webinar, or a masterclass. Unlike them, "Poor Economics" instead empathizes the importance of policies and invisible nudges that could be implemented in people's daily lives to get them out of poverty.
While reading the book, it actually makes me think a lot about the situation in Malaysia, like for example the policy of letting citizens to withdraw from EPF to ease the people financially through the COVID-19 pandemic. News about EPF draining and almost half of EPF contributors have less than RM10,000 in their account worries me. I can never know the predicament some people might be having and how desperate they need the money. So withdrawing from the EPF might just be the best and only solution to navigate through the hardship. However I do hear from certain people around me that some withdrawals are not purely driven by desperation. Some seems to see it as an opportunity to have more cash in hand to spend, while some just worries that government officials might misuse the money in the EPF for their own interest. This just highlights the problem of poor education about retirement saving, or more specifically what is EPF and how does EPF works. It also shows very clearly the degradation of public trust in our government.
One last thing worth mentioning about the book is the authors' attitude towards their work. Despite of their decades long work in fighting poverty, in the end of the book, they still stay humble and state that there is so much still to be learned. The book serves also like an invitation to everyone, to join the effort and build upon the data collected and their researches. In human civilization, as much as we need the people who are shooting for the stars like migrating to Mars, we also need people who relentlessly performing the work at ground level. Their book gives me a lot of hope for humanity.
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