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PROFESSOR: This is 1473,
Challenges of World Poverty.
I'm Abhijit Banerjee, I'm going
to be lecturing on and
off in tandem with
Esther Duflo.
Can you hear me at the back?
I can't figure the acoustics.
Can you hear me well?
OK.
So I guess, just to give a short
description of what this
class is, this is a class which
is meant to introduce
you to conversations--
very broad conversations--
about the questions relating
to world poverty.
So it's not a technical class,
it's not a class that's meant
to teach you very sharp
analytical tools, it's a class
that's meant to teach you how
to participate in the great
debates of the world, and sort
of get you involved in the
great debates of the world.
It's very much, in that sense,
the spirit of the class is
quite different from many other
MIT classes, and that's
deliberate, because I think it's
wonderful that we have a
lot of technical classes at MIT,
but it's also very useful
to occasionally step back and
think of what this means for
the big picture, and for
how we think about
living in the world.
So this is very much a
class of that kind.
It's based very specifically
on this book which--
the book is called
Poor Economics.
That's--
depending on who you ask,
a good or bad pun.
It's a play on the idea of A,
a different way of thinking
about economics and, B, on the
idea that this is economics
relevant to poverty.
So it's a play on that.
It's a book that we
just finished.
It hasn't been published, so
you'll be, literally, the
first people, other than our
close friends, who will get a
chance to read it.
And the--
Laura, can you make sure that
everybody has these?
Or somebody make sure?
This is the process, we
just have to manage.
Otherwise this would--
So the goal of this book
is to, sort of--
the book was written to
integrate a whole bunch of
stuff that we've been working on
for 20 years, nearly, into
a common narrative on how
to think about poverty.
So the book is--
the book has a bunch
of chapters.
Each chapter-- and we're
going to be basically
following the book.
So the book is not available
in the market.
You'll all be able to buy
a copy of the manuscript
version of it now.
And we're going to follow the
book, chapter by chapter,
forward from beginning to end.
So that's sort of--
this is a class, as I said, it's
a class that's not based
on technical material, you will
not have problem sets.
On the other hand, we expect you
to read both what's in our
book, and what's in the--
else that's in the syllabus,
quite carefully.
We're going to have
pop quizzes.
One of the ways in which this
class will be graded is with
pop quizzes that will be
randomly, on random dates, on
the topic of the week.
So we expect to have
read stuff.
That's one.
Second thing that is different
about this class is it's a
class that's--
as I said, it's meant to kind
of get you involved in big
picture thinking, but that
doesn't mean that it's a class
that doesn't expect you to
know the details of what
whatever's being talked about.
In fact, the running theme of
this class is that you can't
fix the problems of the world
unless you pay attention to
the details.
So what we're going to ask you
to do is, as part of the
requirement for the
class, is to write
at least five essays--
short essays, very
short essays--
which will be graded and which
will be on specific aspects of
the topics covered in class.
So you'll have to write.
The way we're going to do the
grading is that there'll be--
you can write up to 12 essays.
Basically 12 topics, you
can write 12 essays.
We're going to give you the
grades for the best five.
And so if you feel like writing
one every week, you
can write one.
If you feel like writing just
five, that's good too.
You're going to get graded
on the best five.
You have to write one longer
essay at some point in the
semester, and there will
be a final exam.
So it's, as I said, it's a
different from many MIT
classes, different from any
other MIT class I've ever
taught in that it's not based on
problem sets, it's based on
these essays--
MIT economics class, I don't
know about literature classes.
But MIT economics classes
typically have problem sets.
This is going to have essays.
It's going to focus on being
able to articulate coherent
interesting thoughts about
the problems of poverty.
So it is very much about--
these essays are going to be
important, and reading and
writing will be important.
So we want you to--
and what goes with that
naturally is discussions will
be important.
We're going to have classes
where there will be a lot of
discussion.
That's why we want you to
have read the pieces.
We are not going to go line by
line through those pieces, we
want to have a combination of
some lecturing and a lot of
discussion.
One of the things that--
where that becomes relevant, is
that we're going to have--
this class is being
videotaped.
If you noticed, there's
a camera up there.
Classes will be videotaped,
but the only part of the
videotape that will be used,
will we publicly available,
will be the lecture
part of it.
The rest of it will be--
the discussions will not be
on the OCW website, so
they will not be--
they'll eventually
be expunged.
So you should not feel
uncomfortable
about speaking out.
We want you to be involved
with the discussion,
passionate in the discussion,
argue with each
other, argue with us.
So you should feel comfortable,
it's not that
you're being put on camera and
everything you ever said that
was potentially maybe incorrect
or is going to be
recorded for all history and
made available on the web.
So we're going to be
very careful in
only keeping the lecture.
So it's a very much a class
that needs the discussion.
It won't be fun if there isn't
a lot of discussion.
And having done this before,
I would say the
converse is also true.
When there's a lot of discussion
it's a lot of fun.
The issues are fundamental, at
some level very live issues,
and it's things where you
have thought about
them, many of them.
Maybe this will change the
way you think about it.
But it is--
these are things
that are fairly
elemental and immediate.
And I think you will, if you get
into the spirit of it, I
think you will enjoy.
So I think that's my
way of background.
Do you have a question
right now?
OK.
So the way we will plan
to start this is by--
you notice you've been
given one randomly
picked sheet each.
The sheet comes with a little
form to fill out.
You can read the sheet and
think about what your
reaction will be.
Remember that this
is for real.
So you will get some--
10 of you will get the money.
So it's real money that you are
assigning to one of these
two [INAUDIBLE].
You have a choice between giving
the money to save the
children or not giving it.
And we don't expect--
there's no obligation.
So the way it's going to work is
you're going to select how
much you're going to give, then
we will have a lottery
and you will get some.
10 of you will win the money,
and when you win the money
that money will be deducted
from the amount you have
proposed, and the rest
[INAUDIBLE] will go to you.
OK?
Is that clear how that works?
Some of you will get nothing.
You're just hypothetically
written down
an amount of money.
Others will actually get
that money, $10.
And out of that you would have
said, I want to give these
people $0.50, and then $0.50
will be deducted and you'll
get $9.50 given to you.
So that's the plan for
this experiment.
So we'll find out what the
results are and we'll discuss
what they mean in
a little bit.
In the meanwhile, I'm going
to play two videos.
I'm going to play two
videos which are--
which represent two very
specific and very well known
points of view on what to
do about world poverty.
The first one features
somebody who was my--
who taught me when I was a
graduate student at Harvard,
Jeffrey Sachs, and
Angelina Jolie.
Angelina Jolie and Jeffrey Sachs
go to Africa and they
discover world poverty.
Or Angelina discovers poverty
under Jeff's tutelage and then
they very clearly articulate a
theory of poverty and what to
do about it, et cetera.
And then from--
so Jeff is now at Columbia
University in New York.
His archenemy is a man called
Billy Easterly who is a
professor at NYU.
So the next video is just-- we
go south from Columbia to NYU
and we play Mr. Easterly's
video next.
So what you're doing is
we're going to sit
and watch some videos.
This is not an exemplar of kind
of material you will have
to deal with.
This is--
there will be much denser
material than this.
This is little fluffier than
most things you're going to
have to deal with, but I think
they're interesting and they
take very well defined
positions.
So listen to them while thinking
of what the position
is that these people are
taking, and why those
positions--
what is the underlying theory
of poverty, the response to
it, all of those are
being articulated
through this process.
And you should kind of come--
and then we'll--
once it ends--
we're going to actually spend
a little bit of time
discussing what we learned
from the video.
So think of questions or
comments you're going to make.
I want this to sink
in for a minute.
And in the meanwhile let me
talk about what we just--
we just compiled the results.
Let's start with
those results.
We'll come back to
[INAUDIBLE].
We'll spend the rest of
the time talking about
[INAUDIBLE].
So the results suggest either
that many experiments that
other people have done were
wrong, or that we didn't do it
right, or more likely, you guys
are more generous than
the rest of the world.
So this is an experiment that's
been done many times.
Let me explain what
the experiment is.
And the experiment, typically,
the way it's done, it's very
different here.
Because you couldn't figure--
we wanted to do it in class and
do it for real, so that
made it a little--
so instead of giving people $10,
the way it's usually done
is that somebody
walks through--
the most famous version of
this was done at the
University of Pennsylvania.
Somebody walked through the
cafeteria distributing $5 to
people, without much
explanation really.
And then about a few minutes
later, somebody came up and
handed each of these people--
they're all randomly chosen--
one or the other of
these letters.
There were actually two
different letters.
None of you should have
seen both, but I
don't know if you have.
They're basically--
both the letters are telling a
story of some reason to help.
So the first--
there was one letter, which is
a letter that tells sort of a
very general story.
The story is about, here are
many problems in the world,
there is, whatever, children--
children are--
let me just read out.
Give me two.
For those of you who--
Yeah.
So the 9 million children die
before their fifth birthday--
actually, I think I have
them on the slide.
Let me just see if I do,
in which case we'll--
that'll be easier.
Nope.
OK.
9 million children die before
their fifth birthday.
A woman--
the probability that a woman in
sub-Saharan Africa will die
before in childbirth
is one in 30.
If you did the same number
for the rich
countries, it's one in 5,600.
So in 25 countries in the
world, most of them in
sub-Saharan Africa, where the
life expectancy at birth is
less than 55 years, and so on.
And so one of the letters that
half of you read was kind of a
catalog of these problems, and
then asks you to decide how
much money you want to give to
Save the Children, which is a
well known organization who try
to solve these problems.
The rest of you got a letter
which described the life of
one individual child,
called Rokia.
And that child has a whole range
of problems, and then
again asks you to give money
towards helping a child, let's
say Rokia herself or
a child like her.
Now what's your guess
about which--
the point of this experiment was
that one of these letters
raised a lot more money
than the other.
What would your guess be?
AUDIENCE: Personal story.
PROFESSOR: Personal story.
Personal story typically raised
about twice as much,
more than twice as much,
as the other one.
Now that turned out to be
not true in this room.
It raised exactly
the same amount.
It raised--
the personal story raised $8.63,
and the other story
raised $7.96, which
is statistically
indistinguishable.
So the experiment basically
failed here.
Now why it failed, my guess--
we'll come back to this
question, actually, maybe if
we have time.
But I think that, my guess is
that you just selected in
being in this classroom, and
therefore you're more generous.
But we could think of
other reasons why.
But the point of the experiment,
had it succeeded--
the point of the way people have
usually interpreted it,
so the average person seems to
react in this very different--
why do you think we all react
very differently?
All of you had the same-- seemed
to agree on the answer.
Basically, out of $5, you gave
$2.60 to Rokia, $1.30 to the
general problem, or something
like that.
And when you tell people that
you give more to Rokia, then
it goes down to $1.30
for both.
So that sort of brings out very
nicely one of the key
issues here, which is that,
I think, once you
start thinking about--
once you're made to think that
the Rokia problem is somehow
an exemplar of a general
problem, you start now
thinking it's like the general
problem, and then
we can't solve it.
And then it's like,
people step back.
So I think this sort of--
this scale effect.
This idea that, well, it's a big
problem, we're scared and
we don't to deal with it, is
sort of one of the starting
points of where we want to start
from, and maybe get away
from is this idea that this is
an enormous problem and,
therefore, we can't do
anything about it.
So if you think of one goal we
want to have in this class is,
in a sense, to move exactly
away from that feeling.
In other words, what we want
to do is to move away from
thinking about one day--
we're thinking of the challenge
as big-- one day
we're going to take a big
shovel, and we're going to
throw all poverty out.
That's not how anything
ever happens.
And so there's no reason to
think of it that way.
And you clearly don't, but the
rest of the world does.
So there is a sense in which--
what we want to do in this
class is to think of the
problem of poverty as a set of
specific efforts that, if we
do it right we will solve them,
and if we don't do it
right, we'll make
things worse.
So we want to turn it into a
set of specific challenges.
Maybe we can't solve those
challenges, but at least let's
first move away from thinking of
it as being this one grand
problem, to thinking about it
as 100 individual problems,
each of which with a
potential solution.
So that's sort of where
we want to get to.
At the end of this semester, we
won't have an answer to how
do you solve world poverty.
I can guarantee you that.
What we might get is a sense
that these are actually
individual problems
that we can--
a set of individual problems we
can start thinking about as
solvable things that we can sort
of apply our minds to.
Some of them we'll have answers
to, some of them we'll
just throw them out as
challenges, and we'll see what
happens at the end.
So that's where we
want to get to.
We want to turn this grand
problem into a set of specific
individual problems.
That's sort of--
and so the whole semester will
be in thinking about specific
issues like the ones that Sachs
brought up, and the ones
that Easterly brought up, and
try to turn them into problems
that we can have some kind
of a leverage over.
Let me just--
so at some level this
is stuff that--
some of this-- just to go
back to the videos--
Sachs does a very good job of
kind of posing the problem.
I think he--
I mean, Easterly, I think,
won't disagree on that.
I think if you think about
what the problem is,
[? with ?] many ways to say it,
one way to say it is just
that people are extremely
poor.
Just a measure of poverty is in
some ways itself a kind of
a useful way to think about--
just to take just
a scale of it.
The scale of it is--
think about those numbers.
The poverty line turns out that
mostly, by some peculiar
accident, India is both the
country which has the maximum
number of poor people in the
world, and it's the country
which has--
if you take the poverty line in
India, do you know what the
poverty line is?
Who knows what a poverty
line is?
Yeah?
AUDIENCE: It's a measure by
which that if someone makes
less than that they believe
[INAUDIBLE] income they're
considered poor.
PROFESSOR: Right.
It's just a way to define
for, how do you
say somebody's poor?
You say, in the US, you say
somebody is poor if their
consumption is less than
$14 per head per day.
That includes lots of stuff.
It includes housing and all
those things, so it's not--
$14 is not $14 in Big Macs.
It's $14 in clothes
and everything.
So that's how you define
poor in the US.
For the rest of the world, the
weights typically people use
is $1 a day.
$1 a day is roughly--
turns out the equivalent of the
poverty line of India, or
equivalently the average of the
poverty lines for the 50
countries where the most
of the poor live.
So if you take the 50 countries
where all of the
poor people live, take the
average of the poverty lines
and say that--
and the poverty lines vary
across countries because
countries, some countries, think
that $14 is the bare
minimum that you need to live.
Other countries have a even more
accepting of misery, and
say that even if you have $1
that's fine, but if you have
less than $1 you're poor.
So it turns out that the
effective definition that a
lot of people use is $1
a day, or $0.99 a day.
This number is now used a lot.
It's called $1 a day poverty.
And you look at this set of
people who live under $1 a
day, 865 million people.
This is our--
Jeff Sachs says 850 million
people live under $1 a day.
So that's just to get a scale
how many poor people out there
in the world.
Well, if you define it with $1
a day, which is 1/14 of what
it is in the US, you
still end up with
about a billion people.
So that's one way to think about
how big the problem is.
It also is a way to think about
how sort of surprising
the problem is.
You would think that--
that says that--
average GDP per capita
in the US is $47,000.
That's like $50,000.
So 50,000 people
could live on--
no, sorry--
50,000 divided by 365.
So that's like--
how much is that?
50,000 divided by 500 is 100.
So 100 people, or 150 people, in
the rest of the world live
on less than the average
income of one average
person in the US.
So that's one way to scale the
problem, is to say that the
average person in the US lives
150 times better than the
average person in the--
the average poor
person in the world.
And that's a minimum because
these people are not at the
poverty line, they're below
the poverty line.
So just to sort of get a sense
of these magnitudes, what's
enormously--
what, in a sense, is surprising
about this is that
there is, like, somehow
the gap is so huge.
It's like it's not that there
is a gap of 10% or
15% or 50% or 200%.
It's a gap of 150 times or
something like that.
So we're just talking of the
order of magnitude is just
stunning here.
And somehow that would seem that
it should be easy to fix.
I mean, if there's such big
gaps, then isn't a little bit
of aid from the US
would make a huge
difference in these countries.
And so it should be easy to make
these countries richer.
And somehow, that's where this
conversation is stuck.
So if you think of where this
conversation is coming out of,
it's coming out of feeling
well, we are so rich, and
these people are so poor,
why can't we do
something about it?
Now, let's go, maybe--
we talked about this.
So let's now go back to the
video with that sort of
background.
I'm going to say
one last thing.
I just want you to look at this
one picture just as a
last parting thought.
So this is what Easterly's--
this is Easterly's
famous picture.
It shows that--
the picture shows the
blue bars are aid.
It keeps going up and down, but
it's basically going up,
up over time.
And you see that despite the
fact that aid is sort of going
up, and the cumulative of all
this-- when he says that
that's how much aid
has gone in--
the cumulative of all this
is the total aid
that has gone in.
You can see that the GDP per
capita seems basically flat.
So aid is going in-- aid is
being pushed in and in and in
and in, and you see that
each blue bar is
adding up the next one.
And this is sort of his
reading of history.
Now one of the things we're
going to worry about here is
what we're going to call
the counterfactual.
So what I think Easterly
has in mind, is
that without the aid--
so the question is, what would
have happened without the aid?
And I think the first problem
in reading any
of this data is--
and this is a key idea, so
I want to stop on this--
is figuring out what would have
happened if we hadn't
given the aid.
So one possibility is
that yellow line is
what would have happened.
That's kind of--
without aid the yellow line
would have happened.
With aid you've got the red
line and the red line is
better than the yellow line.
The alternative, which Easterly
seems to assert, is
that the green line is what
would have happened absent the
aid, and that the difference
between the two-- the negative
difference--
is the consequence of aid.
So in some sense,
this is the--
so this is sort of where--
the problem is that, this now,
once you get to this point, to
be honest, we have
nothing to say.
Because we don't know what
have happened of aid.
Right?
We have only one history to look
at, and if you look at
this one history, this history
could be anything you want.
So in other words, I'll
disappoint you from the
beginning and tell you that this
is a question we'll never
know the answer to.
In fact, we know that we
never going to know.
Whether historically aid was a
mistake or not, is not one of
the questions we'll answer.
To calibrate expectations for
this class, what we will try
to answer is, suppose you
had to give aid, how
would you give it?
That's a question that
we can answer.
And that there--
all the issues you raised
are important.
The issues of whether
people will take up
things you give them.
Is there a demand for
the bed nets?
That's a very key issue.
Is it the case that when we try
to give it to them, the
mechanism to which we
deliver the aid--
let's say the bed nets--
the government tries to give
them out for free and all the
private market shut down.
As you raised, that's
another concern.
A third concern will be about
whether local volunteers can
deliver bed nets or do
we need markets?
A fourth concern will be, is it
the case that when we start
delivering bed nets to local
volunteers, local volunteers
become too powerful politically
and they exploit
their political power
for other purposes.
Each of these concerns that I
think you raised implicitly,
will become a central
concern in
thinking about this question.
So we're going to think about
questions not of the kind of
this kind, because this question
has no answer.
Alas, we'd love to know the
answer to this question, but I
don't think anybody can.
The kind of question we will be
able to answer are if you
had to give out aid, what's
the best way to do it?
So that's the kind of question
we'll try to answer.
And we'll spend a whole
semester, in a
sense, on that question.
So hope to see you
next lecture.
