“Poor Economics” Needs a Theory

Abhijit Banerjee and Esther Duflo have laid bare the gaps in our knowledge of poverty, but we must go much further to fill those gaps. In their book Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty, the authors use data from randomized controlled trials (RCTs) in eighteen countries to show that many of our assumptions about the poor are incorrect. They call for a “patient understanding” and argue that we must “listen to poor people themselves and force ourselves to understand the logic of their choices.”

Their achievement is two-fold. First, they present the behaviors of the poor with minimal interpretation. By contrast, previous characterizations of the poor have been used to critique social welfare programs, as in the case of Scott Beaulier and Bryan Caplan’s finding that the judgment errors described by behavioral economics are especially pronounced among the poor. Second, they challenge the argument against doing for the poor what they should do for themselves. Banerjee and Duflo suggest that the poor lack the “mental space” to take a longer view of their lives. At first glance, this resembles Maslow’s “hierarchy of needs,” in which meeting a low-level need (such as shelter) frees one up to pursue a higher-level need (such as intimacy). But “mental space” may go further. As Banerjee and Duflo write, “Perhaps [the] idea that there is a future is what makes the difference between the poor and the middle class.”

This insight becomes more powerful when placed within a larger framework that includes developmental psychology, which describes the stages through which people pass as they go through life. Psychology also tells us that people raised in unsupportive environments may be constrained in this development. Interestingly, the behaviors often observed among the poor—such as impulsiveness, passivity, and short-term thinking—are also associated with the early stages of children’s development. Harvard psychologist Robert Kegan echoes Banerjee and Duflo’s statement when he writes that at early stages of development the future can only be conceived of as the “present-that-hasn’t-happened-yet.” Banerjee and Duflo offer countless examples of poor children who are stunted physically, medically, and even economically. Might they be stunted psychologically as well?

To answer this question without being dragged into a “sociological determinism” (Banerjee and Duflo’s term) that decrees the poor to be beyond help, we need not just a new theory, but also a new epistemology. Our current thinking on poverty is rooted in a deterministic view of the world. In this view, Cause X leads to Effect Y, and correlation between two variables implies a causal relationship in one direction or the other. Banerjee and Duflo themselves wrestle with this: Does improving education lead to economic growth, or does a growing economy drive improvements in education? Do poor people have more children, or does having more children make you poor? These questions are at the center of many policy debates between what Banerjee and Duflo refer to as “supply wallahs” and “demand wallahs”—debates that largely miss the point and do little to reduce poverty.

To understand poverty, we need a more complex epistemology that allows for the interdependencies which correlation often implies. One interdependency that is central to a “patient understanding” of poverty is the relationship between a person, and his or her environment. In supportive environments, people tend to grow. The adverse environments of poverty, war, and disease, however, may stunt this growth. If we understand this, it opens up new opportunities to reduce poverty by creating the environments in which people thrive. To do otherwise would be both illogical and inhumane.

Read more stories by Eric Meade.