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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.