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Overview

The fight against poverty has been a problem for many people in the world. There are many famous musicians and Hollywood actors who have spoken out about it, but they haven’t been able to solve the problem.

And Poor Economics attempts to provide several answers about why this is the case. The authors believe that we are looking at the problem in the wrong way, by neglecting to examine how poor people live their lives and make decisions. Instead, we should be getting a better understanding of what kinds of aid work for them and which don’t. To do so, we should first seek to understand how poor people behave and think in order get a clearer idea of what kind of help they need from us.

The book Poor Economics explains how to look at the problem of poverty from a different perspective. It shows why poor people refuse to take medicine, have more children, and buy inferior food.

Big Idea #1: Economists seek general solutions to global poverty, but these don’t deal with the problem effectively.

Millions of people die every year because they are poor. It’s a sad fact that we haven’t found an effective solution to this problem yet.

Economists often focus on the big picture when dealing with this problem, asking questions like “Do developing countries need more or less help from outside in order to grow?”

Debates about development aid are usually unproductive because they’re too vague. One side argues that the world’s poorest countries need more money and resources to get them back on track, while the other side says it’s better to leave those countries alone.

Clearly, there is no simple answer to this question. Moreover, debating it does nothing to solve the problem of poverty. Some countries appear to have proven that development aid works well for them. For example, following the Rwandan Genocide, Rwanda received a lot of money and their economy subsequently boomed. However, since there are many factors involved in such situations and we can’t be certain about all of them (for example whether or not they would’ve gotten as much foreign investment without receiving aid), it’s impossible to know for sure if development aid was really responsible for their economic success or if other factors were at play instead.

Moreover, a single case of aid not working is not enough to prove the theory that it won’t work. Multiple countries have received aid and grown just as well if they didn’t receive aid. Both examples are manifestations of an economic reasoning that looks at poverty in the wrong way. Therefore, these arguments will not help solve the problem of poverty.

Rather than focusing on the big picture, it’s more useful to take a closer look at specific measures and evaluate why they do or don’t work.

Big Idea #2: Looking seriously at how poor people make economic decisions is vital for eradicating poverty.

Economists haven’t studied poor people’s economic decisions because they believe that poor people don’t make complex financial decisions.

But that’s not true. Poor people have to be extremely rational about their economic decisions, because they lack financial resources and live in awful conditions.

Poor people have to be careful about the decisions they make, because any decision could affect their livelihoods.

However, if we would consider the economic decisions of poor people more seriously, it would help us to understand what measures are actually required in the fight against poverty. For example, many poor people reject or neglect to use free vaccinations and other services offered by NGOs and governments because they don’t think long term. They also spend their money on things like coffee instead of saving for something more important.