Fighting Poverty With Actual Evidence: A New Freakonomics Radio Podcast

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IPA

(Photo: Innovations for Poverty Action)

Our new podcast is called “Fighting Poverty With Actual Evidence.” (You can subscribe to the podcast at iTunes, get the RSS feed, or listen via the media player above. You can also read the transcript; it includes credits for the music you’ll hear in the episode.)

Not long ago, we put out a podcast that asked the question “Would a big bucket of cash really change your life?” That episode looked at whether winning a land lottery in antebellum Georgia significantly altered a given family’s financial future. University of Chicago economist Hoyt Bleakley, who studied that 1832 lottery, told us this:

BLEAKLEY: We see a really huge change in the wealth of the individuals, but we don’t see any difference in human capital. We don’t see that the children are going to school more. If your father won the lottery or lost the lottery the school attendance rates are pretty much the same, the literacy rates are pretty much the same. As we follow those sons into adulthood, their wealth looks the same in a statistical sense. Whether their father won the lottery, lost the lottery, their occupation looks the same. The grandchildren aren’t going to school more, the grandchildren aren’t more literate.

But one case study can’t definitively answer the larger question: what’s the best way to help poor people stop being poor? That’s the question we address in this new podcast. If features a discussion that Stephen Dubner recently moderated in New York City with Richard Thaler and Dean Karlan. Thaler is an economist at the University of Chicago, and a co-author of Nudge: Improving Decisions About Health, Wealth, and Happiness. (Both the British and U.S. governments now have “nudge” units, focused on using behavioral economics for policy improvements.) Karlan is a professor of economics at Yale and founder of the nonprofit Innovations for Poverty Action (IPA), which hosted the New York event. IPA, which Karlan founded, is trying to figure out how to best alleviate poverty. The answer, as you might expect, isn’t so simple.

In some situations, giving money directly to poor people works well; in others, less so. IPA studied the efficacy of a cash-transfer experiment in Kenya run by the nonprofit GiveDirectly. For background, you might want to see how The Economist described the experiment, and also what NPR’s Planet Money had to say.

Karlan-Thaler-Dubner_NYC

(Photo: Daniel Goodrich)

The tenor of the Freakonomics Radio conversation was, as you might guess, a bit different. Here’s what transpired when Dubner asked Karlan to describe how the poor Kenyan families used the cash:

KARLAN: So they actually didn’t find money going into alcohol. It was a pleasant surprise…

THALER: What a waste. All that money and no fine wine.


Arnaud G.

Hello,

When I saw the title of the podcast I was really excited... Finally, you were going to talk about the "Poor Economics" by Abhijit Vinayak Banerjee and Esther Duflo.

You did not... *sigh* This podcast is fine as a fine wine though.

The studies shown in Poor Economics" are interesting, very well presented and match so well the title of "Fighting Poverty With Actual Evidence", a must read for the people that ever wondered why do the poorest people in the Indian state of Maharashtra spend 7 percent of their food budget on sugar.

PS : I really appreciate your work, I discovered Freakonomics about a month ago and already listened every episodes. Got me thinking about going back to study economics.

John Glazebrook

Fighting poverty.Well on the surface the "Fighting Poverty wjth Evidence" radio program sounds find.But it really is only focusing on a micro level model which also included some distractions about the poor misspending money on alcohol and prostitution.At the macro level there is substantial evidence that markets(private enterprise) and governments waste resources that could otherwise be better directed.How much money is wasted by big business on advertising budgets designed to influence consumers to gamble and eat unhealthy food?How much taxpayers money is wasted by western governments on military interventions and wars?Many taxpayers would not object to paying more taxes if governments provided evidence to show they were reducing poverty.I also found it strange that this program had absolutely nothing to say about population growth and world poverty?Why only call for evidence-based microprograms and not say anything about the need for evidence-based macro-level public policies? John Glazebrook (jdglazebrook@gmail.com)

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Al

I agree that a look at the macro level is needed. If we look at the "War on Poverty" in the US started in the 60's under LBJ we can see that the percentage of people in poverty has not gone down since then. This would be a good place to start when talking about "evidence-based" solutions.

Regarding how resources are used, I'd have to politely object to the way you've characterized things. I don't know how one could objectively say resources could be better used in certain circumstances. If you throw out an empty milk carton, are you "wasting" it because I might be able to use it for art or to build a musical instrument from it? The argument comes down to property rights. It exists or it doesn't. Private companies can do whatever they like with private property just as you or I can. The government may not do as they like because the property (tax money) is not theirs. Just for your own records, I highly object to government using my tax money for anything despite what evidence they can or can't provide because they are using force to solve the problem. I will help the poor as I see fit on a peaceful and voluntary basis.

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steve

Contrary to your statement, the war on poverty has been quite succesfull since LBJ. However, the poverty institutions within the U.S. government can't have this. They need more funding like an addict needs more drugs. So, what they do is subtract all government assistance from a persons income before determining whether they are in poverty or not. With the assistance a large number of people are living above the poverty line but are counted as if they are not.

James

There are a couple of points here that I wonder about. First, what exactly do we mean by poverty? Is a subsistence farmer in say Kenya, living in the context of a traditional culture, really "poor" in the same way that the lowest rung in the US is poor? Seems to me that the Kenyan is in a real sense moderately successful within his cultural context, while the American is not. That means we are really looking at two quite different conditions, which might respond quite differently to different kinds of aid.

Second, I ran across an interesting slideshow http://www.sfgate.com/news/slideshow/17-things-rich-people-do-74597/photo-4563965.php about the ways in which rich American/western people seem to think differently than poor ones. This hit home to be because, despite having been raised in poverty and spending roughly my first decade of adulthood being poor, I somehow acquired most of the rich habits listed there - and these days, I'm quite prosperous, if not actually rich. Cause and effect?

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Scot B

In my opinion, the same things that help people build wealth in developed societies also work well in developing societies. Education (how to take care of your health, how to maintain your stuff, how to build capacity, how to work well with others), self discipline, ethics, access to capital, a reliable legal system, and protection of private property rights. If any of those things are missing, each is a difficult problem to solve on their own and in many societies several are problems.

Juan N

great podcast... as always... I was drawn to check out the transcript to find out more about survey methods such as "list randomization", how to find a % of the truth, or enough of it to make decisions...
The concept of having half truths to make evidence based decisions seems contradictory, but I guess it´s better than nothing at all.

amanda

Back in the dark ages everybody knew some things. If a kid was hungry, you fed him, Corporations even corporations did not want the chemical plant next door exploding. The time of the windfall to the monopoly style of privatization/deregulation is starting to end or at least slow. If Elizabeth Warren gets to be president then one concept will finally be used, anti-trust. Only when we drop down from 20% to the 5% of Finland in poverty can we have good schools and education. How the heck can we get down to that if we don't educate kids? If a kid is hungry then feed him. Provide a surplus of jobs and tax the rich. That is so easy to do in a scientific way. We will see if the political will of all of us can trump the Bill Gates propaganda. Corporations are two year olds whose constant impoverishment of their customers does not bode well for their future. We have to be the adults in the room. It saves them. It then saves us. Save the middle class. or else.

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John Glazebrook

I believe Amanda has made the most interesting comments on poverty.Poverty is essentially a "macroeconomic" problem when our dominant institutions (corporate and government) waste finite resources on militarism,propaganda and advertising, and adopt austerity policies, reduce spending and cut jobs.
Further,no thought has been given to what is the meaning of education and if formal "schooling " is the best way to provide "education "services.
Many formal schooling systems in America and elsewhere are expensive to operate and can leave students starting their working life with a debt.
By defining "poverty" as essentially a microeconomic problem are we really in denial about macroeconomic policy and institutional failures?
Sincerely, John Glazebrook

Eric J

Getting back to the original question, what amount of money would elevate the family from poverty. From my own personal experience, I can say no amount will solve the problem. $10,000 or $100,000, it doesn't matter, it will not change the behavior that caused the poverty in the first place. My family experience matches the Georgia study. A family member living paycheck to paycheck making about $24,000 a year for a family of 3, received a $36,000 inheritance. It took 18 months to burn through the money to the point of foreclosure on a single-wide trailer. This family member grew up in a middle class family with 2 professionals as parents and graduated in the top 5% of the high school class and attended but did not finish college. While working a low paying job is a result of not finishing education, the overspending that caused foreclosure and bankruptcy is a choice. Most swamps can never be filled in with money. There will never be enough.

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Ng Yih Yng

On a related note,
Singapore has no poverty line. So technically nobody in the entire country is defined as being poor. Do you think it's important to have such a definition and what are the implications if such a line was never drawn?

http://sg.news.yahoo.com/poverty-line-not-useful-for-singapore--says-pm-lee--reports-051543857.html

Anne

I would like some evidence-based means of removing the systematic exploitation that propagates poverty. For example, once you've transferred the cash, how do you stop all the landlords, banks, food vendors, etc. from raising the prices on the rents, loans, and goods that these poor consumers must purchase?

James

Market economics, of course. The same thing that stops landlords &c from raising prices beyond what the market will support in more prosperous areas. Why don't I have to pay $50 for a pizza in my neighborhood? I have the money...

Gerardine Luongo

Wow, the discussion doesn't really add much to the question of evaluation

Bill R.

I applaud the attempt to gather evidence but I'm suspicious of monitored populations and pilot programs. It's one thing for a small population to be monitored and compared against a control and quite another for an entire population to be afforded the proven fix.

Dustin

There is an established method for handing out free bags of cash to those in need, at least those seeking higher education. It is called a "scholarship." However, to get one of those money bags, you have to actually convince somebody on a committee that you are "worthy" of getting it in the first place.

Wouldn't it make more sense, at least on paper, to put some kind of screening mechanism in place? What I'm trying to say is that instead of passing out wads of bills randomly to drunk/gambler poor folk and industrious/dilligent poor folk, why not attempt to favor the latter by some sort of pre-disbursement interview? You might see less money being wasted or spent frivolously and more actual economic benefit.

Maybe these researchers are doing that already...