Poor Economics by Abhijit Banerjee and Esther Duflo is the manifesto of a group of developmental economists attempting to escape the tired foreign aid battles of the past. Where empirical studies have failed to provide answers on what works in poverty reduction, Banerjee and Duflo have turned to a new tool, borrowed from clinical medicine: the randomized controlled trial.
What they bill as “a radical rethinking of the way to fight global poverty” is the ultimate triumph of pragmatism. Give the treatment group the policy intervention (bed nets, deworming medicine, etc.), don’t give it to the control group, and measure whether the treatment group does better. While effective and definitive, this “quiet revolution” can only answer the small questions of optimal policy design, not the big ones of solving poverty: what drives growth? What are the best ways to reduce corruption? What kind of local institutions are most effective in developing countries?
Pragmatism is a welcome relief in the bitter, intractable struggle between aid skeptics and aid boosters. And this clearheaded thinking and policy design will improve millions of lives. But, you cannot help but wonder if there’s a bigger answer out there; global crises cry out for sweeping solutions. Poor Economics suggests that there aren’t any.
Poor Economics is also valuable for the amazingly nuanced portrait it paints of the extreme poor. Far from lazy or unintelligent, they, without the safety nets we take for granted, manage their households and businesses with great rationality. They juggle countless difficult economic and budgetary decisions under the burdensome mental overhead that comes with the conditions of poverty. They live lives we cannot even imagine. Poor Economics manages to give us a glimpse, and for that, it is a profoundly enriching read.