Poor Economics

In Poor Economics, economists Abhijit V. Banerjee and Esther Duflo argue that understanding poverty requires moving past grand ideological battles between free markets and state intervention, and instead examining the specific decisions poor people make in their daily lives. Drawing on randomized controlled trials (RCTs) conducted across countries including India, Kenya, Indonesia, and Peru, the authors build what they call an "evidence-based economics" of poverty, organized around themes like hunger, health, education, fertility, risk, microcredit, savings, and entrepreneurship. The book's framing device contrasts two imagined figures, the "supply wallahs" and "demand wallahs," representing those who blame poverty on inadequate services and those who blame the poor's own choices, and shows where each side is empirically wrong. Memorable findings drive the chapters: the poor often spend more on festivals and televisions than on extra calories even when malnourished; free bed nets and deworming pills are adopted far more readily than small fees allow; teachers' absence and weak accountability plague public schools; and microcredit, celebrated as a cure-all, produces modest rather than transformative effects in rigorous trials. Banerjee and Duflo highlight concepts such as the "S-shaped" curve of income and nutrition, the "psychological poverty trap" created by stress and uncertainty, and the tendency to save through informal commitments like ROSCAs. They conclude that small, tested interventions—deworming, subsidized bed nets, commitment savings, information campaigns about returns to schooling—can improve lives far more reliably than sweeping structural reforms, and that policymakers should treat antipoverty policy as a series of concrete, testable questions rather than as a clash of abstract theories.