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on August 31, 2013
As a development professional (i.e. someone who is paid to help poor people in poor countries) I'm very happy to see how the experiences and theories of the authors meld with my own experiences of how poor people in developing countries conduct their lives and organize their livelihoods. As such, I'd say the book serves as an excellent introduction to the economic lives of the poor (although their is another book entitled exactly that, also excellent) and what type of development interventions are likely to work.

The authors advocate for a more measurable approach to development: conduct development projects like scientific experiments to see what work's and what doesn't. In the jargon, this is known as using Randomized Control Trials (RCTs). The authors are very reasonable and don't see RCT's as a cure to all ills, but a step on the path to making development projects a bit more effective. The book functions as an introduction to the use of RCTs in development projects

There are many objections to the effectiveness of RCTs. But the major one is this: In most scientific experiments, an experiment can be replicated by someone else doing the exact same thing and end up with the exact same result. This is called, in the jargon, external validity, and is necessary for science to be,well, science. Unfortunately, there is no guarantee of external validity in international development. There are simply too many unknown unknowns and uncontrollable variables that a successful development project in one place and time has no guarantee of working in another. So, if this makes any sense, RCTs are not very effective in improving aid effectiveness.

In my own experience, there are three practical problems with implementing RCTs: 1) You need to have very smart, well trained people involved from the beginning to ensure the construction of the experiment is valid. This is not always possible. 2) These things are very very expensive to do. 3) Development organizations that do the implementing of projects don't want their projects evaluated since they see it as a way to cut funding.

Insofar as RCTs can be used as an organizational learning tool, there are cheaper methods of M&E (monitoring and evaluation, the jargon again) that can accomplish just that.

All in all, a very good read. The book is obviously meant for a wide audience and is easy reading. As someone who knew alot about what was introduced, I still found it worthwhile to read.
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on April 14, 2014
I’ve spent the past seven years working for Intuit, the company behind such successful consumer software products as TurboTax, QuickBooks, Quicken and Mint.com. A fundamental principle to our product management approach is the “follow-me-home.” That is, we literally shadow our potential customers – usually small business owners and American taxpayers and budgeters – to observe how they behave and why they make the decisions they do. The intent is to learn by observing, rather than surveying or relying on research reports. This widely acclaimed book by two young MIT economists, Abhijit Banerjee and Esther Duflo, takes the Intuit “follow-me-home” approach to the fight against global poverty. While Jeffrey Sachs is declaring the macro-decisions required to end global poverty literally within years and critics like William Easterly are asserting that such claims smack of utopian social engineering, the authors of “Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty,” take a more customer-back approach to making a dent in the problem. They ask a few fundamental questions: “Are there ways for the poor to improve their lives, and what is preventing them from being able to do these things?”

In Part I: “Private Lives,” Banerjee and Duflo take a close look at the lives of the poor from the ground level. Rather than conjuring up solutions from above, the authors first investigate actual behavior of those who are targeted with massive foreign aid packages. The world of development economics assumes that the poor are “trapped” and need our help to escape. They are hungry, lack access to healthcare, and family planning. Is that true? Moreover, there are two basic schools of thought in development economics, which the authors refer to as “wallahs,” from the Hindi word. Those, like Sachs, are “supply wallahs, who envision supply side solutions. That is, if you build schools and supply teachers, more children will go to school and overall education levels will improve. The other approach, the “demand wallahs,” is best exemplified by Easterly, who argues that only demand driven changes will make a difference. In other words, unless and until you change how locals see the value of education there is no point in building schools and hiring teachers.

First, are there really a billion hungry people in the world? Is there a nutritional poverty trap? No, there isn’t, the authors say. A close review of the lives of the poor show that even those living on less than $0.99 a day spend only half of that on food. And if they happen to get more money, they almost always spend it on “empty calories” – sweats and delicacies – not more food.

Is there a “health trap” affecting the poor, as Sachs argues? No, not really either, they claim. The poor actually spend a relatively significant sum on health care, but mainly on expensive cures rather than cheap prevention, mainly due to lack of information, “weak beliefs” and procrastination, according to the authors.

Is there an “education gap” that explains why certain countries can’t seem to find growth? Sort of, they say, but it’s artificial and created by the locals themselves. Parents believe that only advanced education (high school and higher) pays dividends (the authors claim that each extra year of education boosts earning potential, even early elementary education) and both parents and teachers subscribe to an “up or out” mentality where only the most talented students are encouraged to stay in school and receive family support.

Do large families contribute to poverty? Could better access to birth control alleviate the problem? Banerjee and Duflo claim that poor families having 10 children can be rational from their perspective. In all likelihood only 1 or 2 of their children will prove “worthwhile” – succeed in school, get a “good job” (more on that below), and take care of them in old age. Much like the other areas, there is little evidence that “supply” of family planning matters. “Demand” for such services is what really matters. Until poor families alter their views on the value of large families, no amount of intervention will matter. The same goes for valuing preventative healthcare and education, according to the authors. They clearly want to come across as neutrals in the Sachs vs. Easterly debate, but the weight of their evidence piles up heavily on the “demand wallah” side.

In Part II: “Institutions”, the authors review the argument that the poor are hampered by the lack of critical institutions such as access to financing, savings accounts, insurance. “For the poor, every year feels like being in the middle of a colossal financial crisis,” they write, mainly because they lack many safety nets and support institutions.

Some, like Nobel Peace Prize winner Muhammad Yunus, claim that microcredit financing institutions (MFI) hold the key to solving the riddle of global poverty. Banerjee and Duflo agree that the benefits of microcredit are significant, (“In our minds, microcredit has earned its rightful place as ‘one’ of the key instruments in the fight against poverty”), but it is far from being a panacea (“…we are kidding ourselves if we think they can pave the way for a mass exit from poverty”). The fact that only a fifth of eligible businesses in areas where MFIs are present leverage microcredit while the rest use local moneylenders offering extortionist rates needs to be explained. There are a couple of ways to look at it, really. For example, the amount available for loans is quite limited and the terms of repayment are rather inflexible. The informal network of money lenders provide several benefits that MFIs don’t. The lending is often based on personal relationships; the loan amounts can be larger; and the repayment schedule can be modified as needed. For many poor these benefits outweigh the extortionist rates the money lenders charge.

Perhaps even more important, is the developing world home to a billion entrepreneurs waiting to grow their businesses if only they had the access to capital and other resources required? Hardly, the authors say. Rather, most “poor entrepreneurs” are entrepreneurs only because they can’t find any other work. Most of these enterprises are small retail shops that are undifferentiated and lack any real growth potential. “Perhaps the many businesses of the poor are less a testimony to their entrepreneurial spirit than a symptom of the dramatic failure of the economies in which they live to provide them with something better,” the authors write. The type of investment needed for genuine growth requires heavy upfront capital with delayed return, precisely the type of investment that microcredit does not support. “Taken together, this evidence makes us seriously doubt the idea that the average small business owner is a natural “entrepreneur,” in the way we generally understand the term, meaning someone whose business has the potential to grow and who is able to take risks, work hard, and keep trying to make it happen even in the face of multiple hardships.”

What about access to saving accounts? The authors write how many of the world’s poor build their house brick-by-brick; whenever they come into some extra cash, they immediately buy some building supplies and add to the home, which may decade over a decade to complete. Why? Because the poor have no access to savings accounts and the authors suggest that there is no viable private market for it.

Finally, Banerjee and Duflo rejects the pessimistic arguments made in “Why Nations Fail: The Origins of Power, Prosperity, and Poverty” by Daron Acemoglu and James Robinson that INSTITUTIONS (that is, democracy, free speech, free markets, or lack thereof) in poor countries tend to be lacking and therefore arrest development and promote negative influences, like corruptions. The Banerjee and Duflo claim that changes for the better are possible, but only from the margins and from the bottom up. They maintain that even modest changes can have significant political repercussions, such as the threat of public audit. Yes, they conclude, INSTITUTIONS are critical and difficult to change, but they are not necessary and sufficient in and of themselves. Even well-intentioned programs have bad results due to lazy thinking at the policy stage. The important thing to remember is that “Details matter. Institutions are no exception.”

In the closing chapter, “In Place of a Sweeping Conclusion,” Banerjee and Duflo write about five lessons from their research; although they stress that there are no silver bullets. First, the poor lack information; there’s evidence that simple information presented effectively can make a big difference. Second, the poor bear too much personal responsibility for critical decisions; we can make it easier for them to chlorinate their water, inoculate their children, save their money, and so on. Third, the conditions for some markets serving the poor are simply not there; we likely must give away or subsidize critical goods and services (e.g. bed nets, insurance, savings accounts). Fourth, many poor countries have poor political institutions, but they are not therefore doomed to failure; it is possible to design smarter policy without charging the existing social and political structures. Fifth, limited or unrealistic expectations become self-fulfilling prophecies; it is possible to change expectations by tackling the “Three I’s”: ignorance, ideology, inertia.

In sum, “Poor Economics” offers a valuable and embarrassingly novel perspective – the perspective of the poor themselves, who have been the target of $2.3 trillion in foreign aid investment since World War II. They leave the reader with this thoughtful concluding statement: “If we resist the kind of lazy, formulaic thinking that reduces every problem to the same set of general principles; if we listen to poor people themselves and force ourselves to understand the logic of their choices; if we accept the possibility of error and subject every idea, including the most apparently commonsensical ones, to rigorous empirical testing, then we will be able not only to construct a toolbox of effective policies but also to better understand why the poor live the way they do. Armed with the patient understanding we can identify the poverty traps where they really are and know which tool we need to give the poor to help them get out of those.”

Or, to put it more succinctly, “Attend to the details, understand how people decide, and be willing to experiment.”
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on April 26, 2016
This book is great for those who seriously want to learn about how economics works for the very poor, who Banerjee and Duflo categorize as those who live on 99 cents a day or less. If you're interested in political cheap shots, feel-good straw man arguments, or emotional windbaggery, look elsewhere.

Economics is a subject that is easily derailed by partisan jargon and pseudo-intellectualism, so I am always wary of each new econ book I pick up. Poor Economics is written by serious economists who have no time for such nonsense, and this is reflected in the high quality of the book. The authors seriously engage two different perspective throughout the book - one that argues that aid to the global poor often makes matters worse, and the other that argues that the poor cannot rise without heavy external (often government) help. The strengths and weaknesses of each are pointed out dispassionately for a variety of cases and circumstances. With each explanation of why one approach succeeded or failed, you gain a better understanding of how economics for the very poor works. The authors make pervasive use of empirical studies and provide meaningful analysis for each one.

Good (economics) books teach you not what to think, but how to think. With this definition, Poor Economics easily qualifies as quite a good book.
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on November 26, 2015
One of the few books on alleviating poverty rooted in experimentation. It is an approach that is more likely to be correct for two reasons - 1. there is less ideology, aside from the need to measure and 2. You are forced to re-evaluate bad theories. This is such a welcome approach compared to the deeply ideological approaches of a Jeffrey Sachs or Easterly or Mohammed Yunus. Most books in this genre have grandiose single concept theories with minimal experimental support. They also frequently need to upend common sense to make a point. This book takes the reader where the data leads - sometimes reaffirming common sense, sometimes overturning it. Ideas emerge out of an openness to experimental outcomes.
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on April 26, 2014
I'm working my way through Poor Economics. It's difficult to read at times not so much because of the concepts (although the authors' novel use of the economics term 'multiplier effect' threw me a bit), but because of the subject matter. I've lived most of my life in the United States, but I was born in the Philippines, so I'm aware of the hardships that exist in developing countries. Nevertheless, it's troubling reading about the conditions under which the poor live. Ultimately, though, that effort is worthwhile. Banerjee and Duflo shed considerable light on behavior under extreme circumstances, specifically in this case, in the face of poverty.

What I've found most striking so far is how human we all are. The book notes that many who live in poverty would rather spend their money on entertainment in the form of televisions than on bland, though nutritious, foods and food supplements. This is something that many, regardless of socioeconomic class, can relate to. The conditions under which those choices occur in the book, however, impart a sense of poignancy on that decision. There are other sections, which, depending on the reader's frame of reference, help balance out the book's overall tone.

Not surprisingly, Banerjee and Duflo's insights into the nature of poverty are very thought-provoking. I'm certain this book has stirred up quite a few emotions and ideas. One idea I found particularly intriguing was to make nutritious foods and food supplements desirable. Taken a step further, it would seem to make sense to make foods, medical treatments and preventative technologies cool, like entertainment. For example, make oral rehydration solution (ORS) tasty, maybe flavor it, or somehow make it cool to drink. Along the same lines, maybe slap some graphics on mosquito nets or brand them, so children will want to sleep under them (X-Men, Spiderman, Superman, Batman, Avengers, sports teams, etc.).

I'm sure other people have thought of these ideas and many others. And that, in my opinion, is the true power of this book. It engages you and gets you thinking about poverty. That, in and of itself, makes it a book that anyone interested in this issue should consider reading. Highly recommended.
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on September 30, 2012
This book is a perfect example of how economics should be done. Rather than beginning from a very general ideological standpoint (government is the solution, or government is the problem) and then attempting to marshall arguments for that general standpoint, the authors of this book stay close to the ground, synthesizing an amazing amount of empirical evidence, in an attempt to analyze the causes of poverty, and possible solutions. Only by understanding the causes of poverty in detail is it possible to devise solutions that are actually likely to work.

I listened to this book in the car over a long period so I am not going to be able to summarize all the details from memory but I will give an example of what I mean. The reader should be aware that this is only a single example. There are many more examples in the book.

There are, as the authors outline, two general ideological camps in the poverty debate. There are what the authors call the "supply wallahs" and there are the "demand wallahs". The supply wallahs, like Jeffrey Sachs, tend to believe that poverty is largely the result of "poverty traps", situations where a person's current poverty makes it impossible for them to take the steps necessary to lift themselves out of poverty. Supply wallahs tend to support forms of aid because aid is supposed to allow those in poverty to escape from such poverty traps, at which point they are then able to support themselves. The problem is that aid often fails to have the desired effect, and those in poverty often fail to act the way supply wallahs predict that they should in response to aid. This has led the demand wallahs, like William Easterly, to argue against the general efficacy of aid. Demand wallahs argue that the escape from poverty has to be demand driven. As soon as those in poverty begin demanding services that have the potential to lift them out of poverty, like education or medical services, the market will react and supply them. The demand wallahs argue, therefore, against the efficacy of aid, since it does no good to give people things they do not want and will not use.

How does this abstract debate play out on the ground? One example I remember from the book is the issue of contraceptives. Those in poverty tend to have a lot of children. This can give rise to a poverty trap since poor families rarely have the money to educate large families and this tends to perpetuate poverty. The supply wallahs might argue that the solution to this problem would be to provide poor families with free contraceptives so that they can limit their number of children. The problem is these policies have not succeeded in having the desired effect. The demand wallahs, therefore, argue that as soon as the poor start demanding contraceptives they will be supplied.

Rather than choosing a side, and presenting some very general arguments in support, the authors of this book decided to do something radical. They decided to ask poor families why they had large families. It turns out that a lot of poor families consciously choose to have large families as a kind of social insurance. Parents need someone to take care of them in their old age, and the more children they have the more likely it is that at least one of them will be willing to do so. One can see immediately why neither the supply wallahs, nor the demand wallahs, have an adequate solution to this problem. Supplying the poor with free contraceptives does no good if they do not use them, and they will not use them as long as they consider having large families an advantage. Similarly, waiting around until the poor start demanding such services on their own is not going to solve the problem, because as long as the poor need large families to insure their future they are never going to demand such services. As long as the arguments remain at a very general level (whether the escape from poverty is supply or demand driven, etc.) the real solution to this problem remains invisible. Once we understand the problem, however, it becomes possible to devise actual solutions. For example, by providing the poor with social safety nets, like we have in most developed countries, the dependence of parents on their children can be reduced, which would remove the incentives to have large families, and would eliminate the poverty trap.

This book is full of examples like this. The authors isolate a problem, give a brief overview of the standard solutions that have often failed in their intended goals, and then, by analyzing the actual causes of the problem, are able to devise solutions that have a better chance of actually working.

People who read economics books are often looking for support for their own broad ideological commitments. People often want a "general conclusion" that provides a general "one size fits all" solution to all problems, and one that is in line with their prior ideological commitments. This book will not satisfy anyone looking for support for their own broad ideological commitments, or for a "one size fits all" solution to every problem. If you are reading this book in the hopes of finding some arguments to support your "government is always the solution" or "government is always the problem" standpoint you should look elsewhere. What this book does do is analyze a number of problems in great detail and give suggestions for possible solutions to those concrete problems. This, in my opinion, is what the world needs. Less ideological debate, and more concrete solutions to concrete problems. If we could get everybody on board with this message I think the world would be a better place.

One other important insight that this book offers (among many) has to do with institutions. The notion that institutions are important is now a common place in economics. The authors also point out in this book that institutions have a tendency to perpetuate themselves. This can give rise to a pessimistic view. If one believes both, 1) that any escape from poverty requires a fundamental transformation in institutions, and 2) that fundamental transformations in institutions often require full scale revolutions and are extremely rare, then one can easily come to the conclusion that nothing can be done about poverty. The authors of this book, however, give a number of examples where small changes were made, on the ground, to the way that institutions operate, that had rather large effects. One does not even, necessarily, have to change policies, but can simply make cosmetic adjustments to the way that policies are implemented on the ground, or the rules for implementing them, and these small changes often have profound effects. This message is important as an antidote to despair. Small incremental changes can have dramatic effects.

The bottom line is: poverty is not a single problem but is actually thousands of little problems, and those problems have solutions, we just need to find them. Anyone interested in finding those solutions should put this book at the top of their "to read" list.
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on July 23, 2014
Poor Economics by Abhijit Banerjee and Esther Duflo is about the results of randomized trials done in global poor (defined as those that make adjusted for prices the equivalent of a dollar a day) communities. Unsurprisingly, their main conclusion is that more research is needed. However there's a lot of side conclusions to be made.

Generally the authors look for poverty traps and virtuous circles. Poverty traps are cases you have a return on investment until you hit a plateau that can't be overcome without a large investment. Virtuous circles are positive feedback loops where you get a return on investment even when diminishing at high levels. How can you remove poverty traps and encourage people to start on virtuous circles are the main goals of the authors.

They look at food, healthcare, education, family planning, risk hedging, money lending, savings, businesses, and politics. Basically the result is that the poor are pretty much like the rich and are quite capable of making decisions, but lack information, stability, and hope. There's a few surprises like how calories aren't a major issue, but nutrients are. Moneylenders survive even in the presence of microlending companies because moneylenders are far more flexible with payments and able to gather information that microlenders can't afford to do (all of this is paid by the interest rates). Housing is used as a saving medium by buying bricks that are laid for an eventual new room.

One of the major things suggested is to make things easier on the poor by doing it "behind the scenes." For example, if water comes pretreated, it'll be easier to get people to drink treated water instead of them having to buy their own Chlorin and doing it themselves. Information is important, but only if from a trusted source and take the form of concrete facts instead of guidelines. The authors also are a big fan of Conditional Cash Transfers and other incentive styles.

While there's a lot of studies and that respected sibling of the anecdote the case study, there's very little concrete on the life of the poor themselves. There's stuff scattered about the book like the contents of a sample store and the work schedule of a nurse, but it tends to look at things in an abstract sense like this sentence, "A year's supply of the (iron-fortified) fish sauce costs $7 USD PPP, and for a self-employed male, the yearly gain in earnings was $46 USD PPP -- an excellent investment." However I'm not sure what $46 really means in this case. I guess it's 46 days work since they're talking about the global poor but that also doesn't seem right since they also seem to handle far longer sums like $1200 USD PPP payments elsewhere (do you have 1200 day's worth of pay ready for medical emergencies?). I guess I'll like a sample budget or two and related information in the back.

Overall I like the book and do recommend it. It's definitely my favorite of the "what's up with poor countries and what can we do about it?" books.
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VINE VOICEon February 11, 2014
Both conservatives and liberals have plenty to say about poverty and hunger with most of the evidence (on both sides) based on anecdotes rather than research. Banerjee and Duflo develop several different research projects, primarily in India, Indonesia, Bangladesh, and Africa, to ferret out what works and what doesn't.

All of their research is based on assumptions grounded in economic theory (everyone's favorite dismal science), and cultural and social variables are mostly ignored or sidelined. (Oddly, in some cases, socio-cultural variables are brought in to explain an observed outcome different from what economics theory would expect.) However, as the title of the book clearly states, it is 'Poor Economics' -- not 'Poor Sociology' or 'Poor Anthropology'--or even 'Poor Political Science.' So you get a good lesson in basic economics and methodology for testing programs based on economic assumptions.

The book is divided into two parts: Private Lives and Institutions, and both parts keep referring to the "Poverty Trap"--an economic situation that keeps the poor in a recycling state of poverty. For example, a man becomes sick; so he has to work less (lower income) and he has to pay for health care (higher expenses.) When he becomes well, he has to work more to both pay back what he had to borrow when he could not work and the bills for health. So he works harder and longer and becomes sick more often.

Lots of other examples of the poverty trap are examined along with different economic experiments that either seem to work or fail to. The social context may seem baffling to many Westerners, but we all have our own realities based on tradition, institutions and history. So despite the fact that the authors keep their focus on economics, it's not a bad piece of anthropology either.

I know that both conservatives and liberals will be disappointed with some of the findings, and that is the main reason that I have faith in both the methodology and results.
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on July 12, 2014
The book starts with a good perspective but struggles to hold on as it progresses. Contrary to the title, there are clearly no definite answers to the problem of poverty and this is acknowledged in the book at the end. I must appreciate the research and efforts by the authors and their teams in collating info across a reasonable set of countries in finding ways to alleviate poverty.

Are there any answers to the question "why are the poor people poor?". Is it because of a fundamental lacking of a work ethic? I see this phenomenon quite commonly in India. Take any work which is visible in public and for every one person working you will have four watching!! The nation seems to be filled with lethargic and work-shirking people. And most of them could well be categorised as poor. So, the challenge seems to be more to motivate the poor to work and give full value to the wages they earn. Is there any research in this direction? Are there any answers here? All schemes, solutions and policies of both governments and NGO's will come to naught if the basic foundation of a desire to work and get out of poverty is missing in the poor.
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on July 17, 2011
I had the opportunity to read this book Poor Economics by Abhijit Banerjee and Esther Duflo. The book provides excellent insights into the life of poor. The main objective of the book is resolve the conflict between the two solutions for global poverty. One of the solution being is to do nothing and allow the market to evolve in poor countries and other being to fund them until the markets are mature enough to take care on their own.

The authors try to emphasize the fact that there is no one fixed approach to solving the poverty problem. But through RCT (Randomized Control Trials) which many researchers and authors have conducted, the authors try to show that how simple policy changes to existing programs can make it more effective.

For eg. take the example of child vaccination. The authors inform us that in certain poor areas in rural Rajasthan even when vaccination is free, people tend to avoid the program for a variety of reasons. One being superstitious beliefs against vaccination and other factor is time inconsistency. Time inconsistency affects the rich and poor but in the latter's case the consequences are much more drastic. Here the poor understand that vaccination might be better for their children's future just like we understand that eating healthy foods will prevent heart-attack in the future. We keep postponing our habit of eating healthy foods, the poor who have other immediate problems to take care (like the next meal) keep postponing their decision to take their vaccinate their kids. Now when the vaccination program made a small change of adding an extra provision of providing 2Kg dried lentils with each vaccination, the program saw a significant jump in % of children getting vaccinated. The authors explain that the superstitious beliefs though prevented vaccination, it was not rooted strongly in their minds. And by adding the free lentils to the program the poor could come to the camp, get vaccinated and go back home and need not worry about the next meal at least for that day.

The authors also show that poor, in contrast to the popular view that they are lazy and spend irrationally have a lot of factors going against them. For example the middle class society takes many things are granted. For eg. Vaccination: Once the child is born, the hospital immediately provides vaccination. An other example the authors cite is drinking water, we need not worry on water being treated with chlorine to prevent certain water borne diseases, the government does that for us. But for the poor, the water sources (wells, ponds) in their case needs to chlorine treated, else they are susceptible to infections. The poor need to take decisions constantly for their next meal, medicine, money for their business etc and at each step they face more problems than a typical middle class person.

The authors cover the following topics of health, education, insurance and loans (MFI, banks etc) for the poor. In each case they provide insights on why certain policies work and certain don't and how significant achievements in reducing poverty can be made even within existing political structures. Well researched and an useful book for anyone who wants to understand about global poverty.
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