We’re all dumb

Kristof has an interesting column in the New York Times today, subtly entitled “Moonshine or the Kids.”  In it, he describes a “politically incorrect, heartbreaking, frustrating, and ubiquitous” truth: poor people do stupid things with their money.  He cites two MIT economists—Abhijit Banerjee and Esther Duflo (who is totally hot right now)—that calculated that even households living below the $1-a-day threshold of extreme poverty tend to spend a non-trivial proportion of their income (~10%) on things like alcohol, cigarettes, and prostitutes.

I’m not going to argue with Kristof that many impoverished sometimes people make frustratingly and inexplicable choices with their limited resources.  It’s a fact readily apparent on the Native American reservations near where I grew up, where you can see any number of people living in decrepit houses—that have satellite dishes.  In poor developing countries, the harmful impacts of these decisions are even starker: Kristof documents one Congolese father who can’t pay $2 for school fees or $6 for a mosquito net, but manages to drop $12 a month on alcohol.  There were definitely situations in Uganda where I just wanted to shake people and say, “Don’t you realize that you are too poor to be spending your money on that?!?”

So, all in all, Kristof makes a fair point: there is definitely some suffering out there that could be alleviated if only poor people, at times, prioritized better.  What bothers me, though, is how easily arguments like this descend into the claim that poor people are poor because they make bad choices, and, by extension, if they didn’t make bad choices, they wouldn’t be poor.  Although six months of development studies training hardly make me an expert, I have no qualms about saying that both assertions are nonsense.

This recent popularity of things like microfinance is rooted in the idea that the poor have the resources they need to develop themselves—they just need a bit of assistance in using them better.  As we are increasingly finding, though, there’s only so much that clever mechanisms like micro-lending and micro-saving can accomplish in contexts of extreme deprivation.  More small businesses aren’t going to help sub-Saharan African countries that have no internal markets.  Similarly, Foreign Direct Investment is not going to suddenly flood into Congo because parents stop wasting money at the bar and instead ensure that their kids get a primary education and don’t die of malaria.  Education and health are intrinsically good things, but as instruments for development, their power is limited in countries that are completely marginal to the world economy and have a GDP of $350 per head.

The other implication of choice-based narratives about poverty—that people are poor because they make bad choices—is something I find annoying on a personal, as well as academic, level.  It seems that we can test the idea that personal choices are the main cause of poverty by considering whether rich people make better choices with their money.  Obviously, my vantage point is skewed by having spent my last five years in the perpetual potlatch of elite universities, but I think the answer is no.  After all, if we’re talking about trade offs, why do we not have to take responsibility for spending multiple mosquito-nets-worth on a single cocktail?  I could offer endless examples, but I will let the reader judge my hypothesis, which is that poor people don’t make any dumber choices than the rest of us—they just have a smaller margin for error.

If I’m right, then maybe “wasting” money is a human universal.  Perhaps non-essentials—ranging from booze and hookers to more reputable forms of entertainment—are indeed “essential” to what people view as a minimal quality of life.  In that case, it strikes me that any development strategy that relies on people prioritizing what we consider the bare essentials of survival—food, health, shelter—is destined for failure.

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Jukebox: The Dead Kennedys – Kill the Poor

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