Poverty Is Like An Octopus - It Has Many Arms

Why are some regions in the developing world digging themselves out of poverty while others are not? Recent economic analyses continue to shed light on that. Excerpt from books reviewed:

Economists have been better able to understand poverty thanks to growing access to micro-level data and new decision-making models that incorporate psychological factors. Three engaging new books showcase these microeconomic advances: Poor Economics, by Abhijit Banerjee and Esther Duflo; More Than Good Intentions, by Dean Karlan and Jacob Appel; and Portfolios of the Poor, by Daryl Collins, Jonathan Morduch, Stuart Rutherford, and Orlanda Ruthven. Written in language sure to appeal to a general reader, they all focus on the micro level of poverty and on the human conditions that underlie it. Their authors make extensive use of vignettes -- an unusual move for economists -- ­introducing readers by name to real people whose stories illustrate broader concepts.

Informed by extensive experience in the field, their understanding of poverty is refreshingly bottom-up. Only by figuring out what happens on the ground, their thinking goes, can they unlock the bigger picture. The problem with such focused efforts, however, is that the authors largely set aside the role of politics and in so doing neglect much of the bigger picture. After all, some of the greatest successes in raising living standards have come about not by altering individuals' choices but by altering decisions made by governments. [. . . ]

Economists have also become more interested in the impact of social constraints on behavior. A profession that was once suspicious of the power of culture and social structures to explain economic phenomena now routinely builds these factors into its models. This development has led to new insights, such as the idea that people do not save in part because they face social pressure to spend or support their relatives. Seemingly irrational expenditures on lavish weddings or funerals, for example, make more sense when one takes such demands into account.