{"id":689,"date":"2019-10-19T00:00:00","date_gmt":"2019-10-19T00:00:00","guid":{"rendered":"https:\/\/elementummoney.com\/blog\/2019\/10\/19\/importance-development-economics\/"},"modified":"2024-01-05T14:05:15","modified_gmt":"2024-01-05T14:05:15","slug":"importance-development-economics","status":"publish","type":"post","link":"https:\/\/elementummoney.com\/blog\/importance-development-economics\/","title":{"rendered":"Why Development Economics Matters"},"content":{"rendered":"\n
\n

It is possible to make the world a better place \u2013 probably not tomorrow, but in some future that is within our reach<\/p>\nPoor Economics (Abhijit Banerjee & Esther Duflo<\/cite><\/blockquote>\n\n\n\n

As I might have mentioned earlier, I am a history graduate from\na well-known college in India called Lady Shri Ram in Delhi University. While I\nmay not literally use the knowledge of history I picked up in those three\nyears, my graduation years left an indelible mark on me in terms of thinking\nbroadly as well as having a strong feminist tendency. When I moved to Mumbai 11\nyears back, I vividly remember rallying and ranting about how people in this\ncity think only in terms of their own private bubble unlike the critical\nthinking and debates I had had the privilege of participating in, in Delhi (conveniently\nequating my college with the city). Over the years, the risk of my falling into\nthis trap of walking around with blinders has only grown by the year. <\/p>\n\n\n\n

However, on Saturday, I met three multi-generational alumni of\nmy alma mater for a book club meeting (more on that later). While waiting for\none of the persons, conversation turned to how a country is responsible to take\ncare of it\u2019s poorest of poor. While I mused that today India is only about\ntracking the growth number, one of my companions who also works with the\ncountry\u2019s largest corporate NGO corrected me to tell me how there are enough\ndevelopment metrics on which work is constantly being done. Truth be told, my\nignorance on the subject embarrassed me and also slammed home the fact that\nover the years these blinders have probably led me astray from atleast knowing\nabout things beyond me, that matter.<\/p>\n\n\n\n

Then the Nobel Prize for Economics was announced and everywhere\nI looked, there was talk about Abhijit Banerjee, Esther Duflo and Michael\nKremer as well as their war against poverty. Thankfully, when things are\ndangled right under my nose, I still end up venturing into them. As I took some\ntentative steps into understanding what the fuss was all about, I realised just\nhow valuable the work this trio is doing is. <\/p>\n\n\n\n

Why is Development Economics important and why am I reading\nabout it here?<\/h3>\n\n\n\n

Development Economics is the discipline of understanding means of employing policy and intervention in the most efficient manner for poverty alleviation and making the world a more equal place. <\/p>\n\n\n\n

Let\u2019s face it, today in India we are obsessed with numbers \u2013 be it the GDP growth rate, the manufacturing index or even the returns in the market which again we equate as a barometer to the economy doing well. In all this, where does uplifting the poor or social mobility of future generations or equitable distribution of wealth figure? How many of us give a rat\u2019s ass about it?<\/p>\n\n\n\n

Elementum Money is about the core aspects of money. In my mind, the main purpose of money is to make it a better life for everyone which is why I have talked about Philanthropy<\/a> as well. <\/p>\n\n\n\n

However, if I was to give you a selfish reason, then in this\ntug-of-war between growth and equity, if the latter is ignored for too long,\nthe yawning gap of income inequality can easily take any economy on a dangerous\ntrack with possible consequences. More equitable development and poverty\nalleviation is really not an option, but a necessity. <\/p>\n\n\n\n

The reason why I decided to talk about it on this blog is that\nas an erstwhile marketer, I believe the more conversations that are there about\nsomething that matters, the better it\u2019s chances. That does not mean that you\nhave to agree with all the work done in the field. It is more to do with being\naware of it\u2019s existence, mulling and thinking over it and having an informed\nopinion. Only when it captures a larger mindshare can we expect more progress\nto be made.<\/p>\n\n\n\n

While the Nobel committee bestowing it\u2019s Award for work done in\ndevelopment economics will go a long way to make it more mainstream, every drop\ncounts, right?<\/p>\n\n\n\n

3 important findings by Banerjee-Duflo<\/h3>\n\n\n\n

As mentioned above, I tried to read and absorb a fair bit of the\nwork done by the duo. I have to admit that there were quite a few proposals\nthat I did not agree with. For instance, I am really unsure of how effective is\nthe idea of giving cash directly to the poor. How do you decide who deserves\nit? Isn\u2019t raising minimum wages a better means? <\/p>\n\n\n\n

Similarly, in one of the papers Duflo mentions that a country\nshould not keep raising the tax brackets, so as to envelop more people in the\nfold. In a country like India, where enough people find means and ways to\nescape taxation, putting all burden on the middle class, as a hard working\ncitizen is something that bothered me terribly. <\/p>\n\n\n\n

However, there were 3 findings I found interesting which I will\ngo ahead and highlight:<\/p>\n\n\n\n

1. Poverty is heterogeneous<\/h4>\n\n\n\n

For a long time, poverty has been seen from a bird\u2019s eye view of\nanalyzing the numbers and assuming the same applies to all situations. The duo\nproved with their experiments that poverty and it\u2019s impact varies depending on\na number of factors. Instead of a blanket quantitative analysis, they proposed\nRCT or Randomised Controlled Testing, where in a small localized group, a\nhypothesis would be tested by applying it on one group referred to as \u201ctreatment\ngroup\u201d as compared to the other group that remains status quo, referred to as\nthe \u201ccontrol group\u201d.<\/p>\n\n\n\n

For instance, they want to test a hypothesis that increased\nminimum wages improve lives of the poor on a few pre-defined metrics. In a\ncontrolled environment, they will increase it for one set of people, with\nanother set of people operating on the existing current wages. Then, they will\nobserve both the groups and come to accept or reject the hypothesis. <\/p>\n\n\n\n

I thought this was an interesting way to look at things except for two concerns. One, the sample sizes will be very small and how do you adapt those findings to a larger population especially when the accepted wisdom is that poverty is heterogenous. And two, as this article argues<\/a>, it could lead to short term issues with creating a set of haves and have nots within the tested population. <\/p>\n\n\n\n

2. Microfinance is not the holy grail of poverty alleviation, as otherwise celebrated<\/h4>\n\n\n\n

Let me admit it. I am a fan of the idea of micro finance. I read the book \u201cBanker to the Poor\u201d<\/a> by Mohammad Yunus quite some time back and a lot of things that he wrote about seemed to make sense to me. <\/p>\n\n\n\n

One of the key findings of this duo is that micro finance is not\nas effective in poverty alleviation as assumed currently. They believe that the\ninterest rates are far too high, which I wouldn\u2019t deny they are and the values\ngiven out too little to make a difference. <\/p>\n\n\n\n

However, I for one, believe that micro finance still holds\nmerit. Maybe it can do with a few localized tweaks. But, the way it promotes\nentrepreneurship and gives a sustainable livelihood to the poor has to have\nmerit.<\/p>\n\n\n\n

3. The poor like to spend on Entertainment<\/h4>\n\n\n\n

In one of their papers, Banerjee-Duflo assert that unlike the hypothesis that if in possession of more money, poor people will inevitably spend on high calorie food to make up for their calorie intake, they often end up spending on entertainment. One statement that I really liked was how we should not be judgmental and the poor have every right to spend money the way they want to. As they write in their book \u201cPoor Economics\u201d<\/a> \u2013 Generally, it is clear that things that make life less boring are a priority for the poor\u201d<\/em><\/p>\n\n\n\n

As for this finding, personally I can relate to it very well.\nThere is a slum right next to my apartment and very often they end up giving us\nsleepless nights (or a reason to dance, depending on the mood) with either loud\ndhol <\/em>or Bollywood music blaring from\nspeakers. Living in such a closely-knit community, they sure know how to pool\nin and make life less boring.<\/p>\n\n\n\n

A world of possibilities<\/h3>\n\n\n\n

As these thoughts have swirled around in my head, I was making\nmy way home using a Mumbai commuter train. As I sat reading a book about Jazz\nand it\u2019s role in American culture, I noticed this young girl sitting across me\nreading a book. These days, in the rare occurrence of my sighting a fellow\nreader, the probability is pretty high that I will ask them about the book and\nengage in conversation. Which is what happened in this instance.<\/p>\n\n\n\n

Turned out that the girl was reading a well-known book in this field\ncalled \u201cEveryone loves a good drought\u201d by P. Sainath. As we started talking, I\ndid most of the listening as she told me about her days being a journalism\nstudent and how they had had a guest lecture by the author in question. She\ntalked with that fire in her eyes about how media no longer seemed to be\nfocusing on poverty alleviation. She ranted about how so many welfare projects\nseem to be launched but nobody seems to be interested in their results or how\nthey are faring and our national obsession currently seems centred only around\nPakistan. As I listened to her and let her gushing enthusiasm envelop me, I vicariously\nrelived the idealism and passion of youth.<\/p>\n\n\n\n

Finally, when I was about to alight from the train, she asked me\nwhat I did for a living and I told her I advise HNIs about investments. For a\nminute, she looked confused and literally scowled at me, especially since I had\ntold her I am a history graduate and some of my batchmates ended up going to\nher college to pursue journalism. However, I told her about my switch and how\nmy why for being in this industry is to help people make smart decisions with\ntheir money. The kicker was her reaction \u2013 \u201cAnd you are still interested in all\nthis (development economics and poverty alleviation)?\u201d<\/p>\n\n\n\n

In my mind, if even with all the idealism and optimism she could\nbe surprised at the coexistence of being in an investing field and sensitivity\nto equitable distribution of wealth, then surely we have a long long way to\ntraverse. <\/p>\n\n\n\n

What do you think? Have you ever tried to explore and understand\nmore on how a welfare state or development economics operate or is it\ncompletely out of your zone? Let me know in the comments below. <\/p>\n","protected":false},"excerpt":{"rendered":"

It is possible to make the world a better place \u2013 probably not tomorrow, but in some future that is within our reach Poor Economics (Abhijit Banerjee & Esther Duflo As I might have mentioned earlier, I am a history graduate from a well-known college in India called Lady Shri Ram in Delhi University. While I may not literally use the knowledge of history I picked up in those three years, my graduation years left an indelible mark on me in terms of thinking broadly as well as having a strong feminist tendency. When I moved to Mumbai 11 years back, I vividly remember rallying and ranting about how people in this city think only in terms of their own private bubble unlike the critical thinking and debates I had had the privilege of participating in, in Delhi (conveniently equating my college with the city). Over the years, the risk of my falling into this trap of walking around with blinders has only grown by the year. However, on Saturday, I met three multi-generational alumni of my alma mater for a book club meeting (more on that later). While waiting for one of the persons, conversation turned to how a country is responsible to take care of it\u2019s poorest of poor. While I mused that today India is only about tracking the growth number, one of my companions who also works with the country\u2019s largest corporate NGO corrected me to tell me how there are enough development metrics on which work is constantly being done. Truth be told, my ignorance on the subject embarrassed me and also slammed home the fact that over the years these blinders have probably led me astray from atleast knowing about things beyond me, that matter. Then the Nobel Prize for Economics was announced and everywhere I looked, there was talk about Abhijit Banerjee, Esther Duflo and Michael Kremer as well as their war against poverty. Thankfully, when things are dangled right under my nose, I still end up venturing into them. As I took some tentative steps into understanding what the fuss was all about, I realised just how valuable the work this trio is doing is. Why is Development Economics important and why am I reading about it here? Development Economics is the discipline of understanding means of employing policy and intervention in the most efficient manner for poverty alleviation and making the world a more equal place. Let\u2019s face it, today in India we are obsessed with numbers \u2013 be it the GDP growth rate, the manufacturing index or even the returns in the market which again we equate as a barometer to the economy doing well. In all this, where does uplifting the poor or social mobility of future generations or equitable distribution of wealth figure? How many of us give a rat\u2019s ass about it? Elementum Money is about the core aspects of money. In my mind, the main purpose of money is to make it a better life for everyone which is why I have talked about Philanthropy as well. However, if I was to give you a selfish reason, then in this tug-of-war between growth and equity, if the latter is ignored for too long, the yawning gap of income inequality can easily take any economy on a dangerous track with possible consequences. More equitable development and poverty alleviation is really not an option, but a necessity. The reason why I decided to talk about it on this blog is that as an erstwhile marketer, I believe the more conversations that are there about something that matters, the better it\u2019s chances. That does not mean that you have to agree with all the work done in the field. It is more to do with being aware of it\u2019s existence, mulling and thinking over it and having an informed opinion. Only when it captures a larger mindshare can we expect more progress to be made. While the Nobel committee bestowing it\u2019s Award for work done in development economics will go a long way to make it more mainstream, every drop counts, right? 3 important findings by Banerjee-Duflo As mentioned above, I tried to read and absorb a fair bit of the work done by the duo. I have to admit that there were quite a few proposals that I did not agree with. For instance, I am really unsure of how effective is the idea of giving cash directly to the poor. How do you decide who deserves it? Isn\u2019t raising minimum wages a better means? Similarly, in one of the papers Duflo mentions that a country should not keep raising the tax brackets, so as to envelop more people in the fold. In a country like India, where enough people find means and ways to escape taxation, putting all burden on the middle class, as a hard working citizen is something that bothered me terribly. However, there were 3 findings I found interesting which I will go ahead and highlight: 1. Poverty is heterogeneous For a long time, poverty has been seen from a bird\u2019s eye view of analyzing the numbers and assuming the same applies to all situations. The duo proved with their experiments that poverty and it\u2019s impact varies depending on a number of factors. Instead of a blanket quantitative analysis, they proposed RCT or Randomised Controlled Testing, where in a small localized group, a hypothesis would be tested by applying it on one group referred to as \u201ctreatment group\u201d as compared to the other group that remains status quo, referred to as the \u201ccontrol group\u201d. For instance, they want to test a hypothesis that increased minimum wages improve lives of the poor on a few pre-defined metrics. In a controlled environment, they will increase it for one set of people, with another set of people operating on the existing current wages. Then, they will observe both the groups and come to accept or reject the hypothesis. I thought this was an interesting way to look at things except for two concerns. One, the sample sizes will be very small and how do you adapt those findings to a larger population especially when the accepted wisdom is that poverty is heterogenous. And two, as this article argues, it could lead to short term issues with creating a set of haves and have nots within the tested population. 2. Microfinance is not the holy grail of poverty alleviation, as otherwise celebrated Let me admit it. I am a fan of the idea of micro finance. I read the book \u201cBanker to the Poor\u201d by Mohammad Yunus quite some time back and a lot of things that he wrote about seemed to make sense to me. One of the key findings of this duo is that micro finance is not as effective in poverty alleviation as assumed currently. They believe that the interest rates are far too high, which I wouldn\u2019t deny they are and the values given out too little to make a difference. However, I for one, believe that micro finance still holds merit. Maybe it can do with a few localized tweaks. But, the way it promotes entrepreneurship and gives a sustainable livelihood to the poor has to have merit. 3. The poor like to spend on Entertainment In one of their papers, Banerjee-Duflo assert that unlike the hypothesis that if in possession of more money, poor people will inevitably spend on high calorie food to make up for their calorie intake, they often end up spending on entertainment. One statement that I really liked was how we should not be judgmental and the poor have every right to spend money the way they want to. As they write in their book \u201cPoor Economics\u201d \u2013 Generally, it is clear that things that make life less boring are a priority for the poor\u201d As for this finding, personally I can relate to it very well. There is a slum right next to my apartment and very often they end up giving us sleepless nights (or a reason to dance, depending on the mood) with either loud dhol or Bollywood music blaring from speakers. Living in such a closely-knit community, they sure know how to pool in and make life less boring. A world of possibilities As these thoughts have swirled around in my head, I was making my way home using a Mumbai commuter train. As I sat reading a book about Jazz and it\u2019s role in American culture, I noticed this young girl sitting across me reading a book. These days, in the rare occurrence of my sighting a fellow reader, the probability is pretty high that I will ask them about the book and engage in conversation. Which is what happened in this instance. Turned out that the girl was reading a well-known book in this field called \u201cEveryone loves a good drought\u201d by P. Sainath. As we started talking, I did most of the listening as she told me about her days being a journalism student and how they had had a guest lecture by the author in question. She talked with that fire in her eyes about how media no longer seemed to be focusing on poverty alleviation. She ranted about how so many welfare projects seem to be launched but nobody seems to be interested in their results or how they are faring and our national obsession currently seems centred only around Pakistan. As I listened to her and let her gushing enthusiasm envelop me, I vicariously relived the idealism and passion of youth. Finally, when I was about to alight from the train, she asked me what I did for a living and I told her I advise HNIs about investments. For a minute, she looked confused and literally scowled at me, especially since I had told her I am a history graduate and some of my batchmates ended up going to her college to pursue journalism. However, I told her about my switch and how my why for being in this industry is to help people make smart decisions with their money. The kicker was her reaction \u2013 \u201cAnd you are still interested in all this (development economics and poverty alleviation)?\u201d In my mind, if even with all the idealism and optimism she could be surprised at the coexistence of being in an investing field and sensitivity to equitable distribution of wealth, then surely we have a long long way to traverse. What do you think? Have you ever tried to explore and understand more on how a welfare state or development economics operate or is it completely out of your zone? Let me know in the comments below.<\/p>\n","protected":false},"author":1,"featured_media":690,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[574,576],"tags":[280],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/elementummoney.com\/blog\/wp-json\/wp\/v2\/posts\/689"}],"collection":[{"href":"https:\/\/elementummoney.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/elementummoney.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/elementummoney.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/elementummoney.com\/blog\/wp-json\/wp\/v2\/comments?post=689"}],"version-history":[{"count":2,"href":"https:\/\/elementummoney.com\/blog\/wp-json\/wp\/v2\/posts\/689\/revisions"}],"predecessor-version":[{"id":1945,"href":"https:\/\/elementummoney.com\/blog\/wp-json\/wp\/v2\/posts\/689\/revisions\/1945"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/elementummoney.com\/blog\/wp-json\/wp\/v2\/media\/690"}],"wp:attachment":[{"href":"https:\/\/elementummoney.com\/blog\/wp-json\/wp\/v2\/media?parent=689"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/elementummoney.com\/blog\/wp-json\/wp\/v2\/categories?post=689"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/elementummoney.com\/blog\/wp-json\/wp\/v2\/tags?post=689"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}