Lifestyles of the the poor and unknown

Survey shows: People living in extreme poverty still have disposable income.

Published December 21, 2006 1:12AM (EST)

It has become fashionable in certain right-wing circles to avoid embarrassment over the fact that the U.S. devotes a smaller portion of its gross domestic product to foreign aid than any other rich country by intoning pompously that throwing money at the problems of poverty or healthcare in the developing world doesn't work. So why bother? Lately, the leading exponent of such a view has been William Easterly, author of "White Man's Burden," who has been adopted as a kind of standard bearer by those who simply can't tolerate being made to feel guilty by Jeffrey Sachs, author of "The End of Poverty." (An exchange between Easterly and Sachs can be found here.

Framing the debate in an all-or-nothing works/doesn't work box has never made much sense. Even Easterly will concede that some aid-funded programs are effective. But next time you find yourself in the middle of a similar debate, try bringing up this nugget from Abhijit V. Banerjee, an MIT economist who has devoted his career to evaluating the effectiveness of poverty alleviation programs. In an essay published in the Boston Review this summer, Banerjee argued that there are enough programs that have been proven effective to swallow up as much money as countries want to give.

Empirical research on best practice in development has grown apace in the last decade or so, and we now have evidence on a number of programs that work. These are programs that do something very specific -- such as giving deworming drugs to schoolchildren and providing a particular kind of supplemental teaching in primary schools -- that have been subjected to one or several randomized evaluations and have been shown to work. Several years ago, Ruimin He and I put together a list of programs that meet these two criteria and calculated how much it would cost to scale them up to reach the entire population that needs them. While the calculation inevitably involved a lot of guesswork and was meant only to illustrate a point, the number we came up with, leaving out all income-transfer programs, was $11.2 billion a year. To compare, between 1996 and 2001 the World Bank's International Development Association loans (the main form of World Bank aid) totaled about $6.2 billion a year. We could clearly spend all that and more without ever funding a program that does not have a demonstrated record of success, especially given that evidence on new programs is pouring in.

Stick that in your hip pocket. I guarantee it will come in handy.

Banerjee and his MIT colleague, Esther Duflo, run an MIT spinoff called the Poverty Action Lab, where they focus on organizing exactly the kind of empirical evidence they believe is necessary for prudent aid-giving. Since both economists have devoted their entire careers to understanding what is really going on in impoverished regions of the world, I was predisposed to take a new paper they co-wrote in October, "The Economic Lives of the Poor," quite seriously. Drawing on survey data from 13 countries, Banerjee and Duflo attempt to construct a detailed understanding of exactly what poor people are spending their money on.

They appear to be surprised by much of what their data tells them. This, in turn, seems like a surprising reaction.

First off, they are puzzled that the poor -- defined in this paper, as those whose spend under a dollar or two a day -- don't spend all their money on food. They only spend from around 56 percent to 75 percent of their income on food -- even when that means that their total calorie consumption is insufficient for proper nourishment. But they're not saving the rest -- they are spending it on alcohol, cigarettes, sugar, tea and "entertainment."

The lack of self-discipline results in raised eyebrows for Banerjee and Duflo.

It is hard to escape the conclusion that the poor do see themselves as having a significant amount of choice, and choose not to exercise it in the direction of spending more on food. The typical poor household in Udaipur [in India] could spend up to 30 percent more on food than it actually does, just based on what it spends on alcohol, tobacco, and festivals.

Carrying enough savings to make sure that they never have to cut meals, should not be too hard for these households since, as noted above, they have substantial slack in their budgets and cutting meals is not that common. It would also make it easier for them to deal with healthcare emergencies. As such, saving a bit more would seem like a relatively inexpensive way to reduce stress.

Putting aside the rather unfortunate phrasing -- describing people who live in what the World Bank considers conditions of "extreme poverty" as having "substantial slack in their budgets" seems a little odd -- there is an undertone in the paper that suggests that if only these poor people could demonstrate a little more "self-control" then they could Horatio Alger themselves out of their dire conditions by sheer force of boot-strapping will.

Don't we all wish that! Wouldn't we all be more productive, healthy and wealthy if we eschewed all sin and luxury, squirreled away every spare cent, and dedicated ourselves to unremitting self-improvement? When I look at the survey results compiled by Banerjee and Duflo, I don't see a lack of self-control or self-discipline, I see people being ordinary humans, with ordinary desires, no matter what their income level. When I read the following passage, I am tempted to rephrase Hemingway's and Fitzgerald's famous exchange: "The poor are different than you and me." "Yes, they have less money."

The poor seem quite aware of their vulnerability to temptation. In the Hyderabad survey, the respondents were asked to name whether there are particular expenses that they would like to cut. Twenty-eight percent of the poor named at least one item they would like to cut. The top item that households would like to cut is alcohol and tobacco (mentioned by 44 percent of the households that want to cut on items). Then comes sugar, tea, and snacks (9 percent), festivals (7 percent), and entertainment (7 percent).

And then finally, at the very end:

One senses a reluctance of poor people to commit themselves psychologically to a project of making more money. Perhaps at some level this avoidance is emotionally wise: Thinking about the economic problems of life must make it harder to avoid confronting the sheer inadequacy of the standard of living faced by the extremely poor.

This kind of speculation (which, by the way, seems a little out of character for two development economists so dedicated to determining best practice from hard data) seems to me to miss the point. It's not avoidance that's the problem -- it's the inadequacy of the living standards. It's hard not to reach for that drink or smoke another cigarette, or add a couple of lumps of sugar to your tea when you're feeling oppressed -- especially when you actually are. Self-control is never easy, and I would guess it might be even harder when you're poor, than when you're rich.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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