Poor Economics

i went yesterday to see a talk by Esther Duflo and Abhijit Banerjee, two MIT economists considered stars in policy realm of global development. They were touting their forthcoming book, “Poor Economics” (Andrei Shleifer, who introduced their talk, cracked that the book was not about the state of the field).

The basic argument is that the poor are not creative people imprisoned by their lack of money, yearning to be set free to build good lives for themselves. No, the poor are like almost everyone else — they want nice things. For instance, Duflo and Banerjee found in their research that when people who make $1 a day increase their wages, they spend 1/3rd of that increase not on more food, but higher quality food. Nor does their research show that the poor are, as Banerjee put it, “capitalists without capital.” Only 15 percent of Mexico’s poor were entrepreneurs in 2002. By 2005, business failures meant only 6 percent of those poor were still operating, and only 1.8 percent had retained the same number of employees.

A survey showed that most poor people — 75 percent — want their sons to grow up to work for the government, either directly or as teachers. Another 18 percent hope their sons will get jobs at private firms. That leaves a tiny fraction who want to see their children become entrepreneurs. Banerjee says the reason is simple: it’s too hard to be an entrepreneur, and too risky. I feel that way sometimes, myself.

It looks like a promising book, and a fresh look at a crucial area of development economics. It’s due out in early May.