The Economics of Poverty The Economics of Poverty and the and the

Poverty of Economics:Poverty of Economics:

A Christian PerspectiveA Christian Perspective

Christopher B. BarrettChristopher B. BarrettCornell UniversityCornell University

Prepared for the Upstate New York Prepared for the Upstate New York InterVarsity Christian Fellowship Faculty InterVarsity Christian Fellowship Faculty

ConferenceConferenceApril 5, 2003April 5, 2003

Facts:Facts:

▫ ▫ > 3 bn live on < $2/day > 3 bn live on < $2/day ▫ ▫ 1/3-1/2 undernourished1/3-1/2 undernourished▫ > 20% of children live in ▫ > 20% of children live in acute poverty <$1/day acute poverty <$1/day

Why does such Why does such unnecessary injustice unnecessary injustice continue to disfigure a continue to disfigure a rich, technologically rich, technologically advanced world?advanced world?What can be done to care What can be done to care for the poor and thereby for the poor and thereby to care for and honor to care for and honor God?God?

The Economics of PovertyThe Economics of Poverty

“Most of the people in the world are poor, so if we “Most of the people in the world are poor, so if we knew the economics of being poor we would know knew the economics of being poor we would know much of the economics that really matters. Most of much of the economics that really matters. Most of the world’s poor people earn their living from the world’s poor people earn their living from agriculture, so if we knew the economics of agriculture, so if we knew the economics of agriculture we would know much of the economics agriculture we would know much of the economics of being poor.”of being poor.”

- Theodore W. Schultz, 1979 Nobel Lecture- Theodore W. Schultz, 1979 Nobel Lecture

HopeHopeThe traditional

“snapshot” view:

Headcount and poverty gap (FGT) measures: in Madagascar, 69.6% below poverty lineBut there’s an emerging, dynamic, “video” But there’s an emerging, dynamic, “video” viewviewDistinguish between chronic and transitory poverty

Much poverty is in fact transitory: exit poverty quickly. Chronic and persistent poverty have different implications:

- hopelessness - the existence of “poverty traps”

Figure 1: Comparative Poverty Dynamics

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United States 1993-94 ($15.05)

Sources: USA: Naifeh (1998), others BASIS CRSP project. Poverty line levels are all in inf lation-adjusted 2002 US dollars.

Ngambo, Northern Kenya 2000-2 ($0.25)

Fianarantsoa, Southern Madagascar 1997-2002 ($0.25)

Vakinankaratra, Central Madagascar 1997-2002 ($0.25)

Not just magnitude, but nature and duration of poverty differ

AgencyAgency

Chronic poverty gives particular salience to the concept of poverty traps.

The essence of the poverty trap is that one chooses to stay in a situation that almost surely implies a life of poverty.

In some places and for some peoples, the choice set is relatively limited and none of the feasible options is especially attractive.

Poverty traps turn on the existence of critical thresholds.

Absent such thresholds, all poverty would be transitory with everyone accumulating productive assets until they converged on a single equilibrium income level.

Examples from Madagascar: - seasonal rice sales - nonadoption of SRI

People rationally choose strategies that leave them People rationally choose strategies that leave them poor because superior options are either infeasible poor because superior options are either infeasible or unattractive to them, given the incentives they or unattractive to them, given the incentives they face.face.

But not everyone’s choice set is the same.

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Figure 2: Income Orderings byLivelihood Strategy in Rwanda

DiscipleshipDiscipleship

A disciple eschews comfort in favor of constant seekingfor new insights/challenges, albeit about a core Truth.

- learn new skills and technologies - education - exploit new market opportunities

Economic growth requires technological change … the poor are too rarely presented the opportunity to practice discipleship.

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Figure 3: US Foreign Assistance Flows

We need to practice discipleship, constantly seeking new insights and challenges so as to better discern and practice the single, core truth that technological advance is the only sustainable path out of poverty.

““For you know the generous act of our Lord Jesus For you know the generous act of our Lord Jesus Christ, that though He was rich, yet for your sakes Christ, that though He was rich, yet for your sakes He became poor, so that by His poverty you might He became poor, so that by His poverty you might become rich. I do not mean that there should be become rich. I do not mean that there should be relief for others and pressure on you, but it is a relief for others and pressure on you, but it is a question of a fair balance between your present question of a fair balance between your present abundance and their need, so that their abundance abundance and their need, so that their abundance may be for your need, in order that there may be a may be for your need, in order that there may be a fair balance. As it is written, “The one who had fair balance. As it is written, “The one who had much did not have too much, and the one who had much did not have too much, and the one who had little did not have too little.” little did not have too little.”

(2 Corinthians 8:9,13-15).(2 Corinthians 8:9,13-15).

GraceGrace

Income = assets * r.o.r. Chronic poverty arises from meager asset endowments, low rates of return, or both.

Agency plays an important role, but so does chance. Our choices are in no sense deterministic of outcomes.

Grace explains a great deal of chronic poverty. Most of the poor have simply not been as materially lucky as the non-poor have been.

Luck can have persistent effects,for good or for ill, due to crucial thresholds that create poverty traps.

- Intergenerational earnings transmission - Poverty breeds insecurity and vice versa. Poor people respond to insecurity today in ways that compromise their capacity to build a better life for themselves tomorrow. Such behavior is rational.

TransformationTransformationThere are tipping points associated with critical thresholds … hence the role for well-targeted assistance.

But we are only just beginning to identify those thresholds:

Basile Rajaonarison and the gift of a dairy cow

The Poverty of EconomicsThe Poverty of Economics

Economists’ analytical toolkit helps thoughtful stewardship.

Yet, the tools often become idols unto themselves.

Economic theory too often taken to be truly universalin all of its details, although many core assumptions are socioculturally specific.

Not all of the salient issues are best approached via economics’ empirical toolkit.

Metrics of Poverty

Economists’ emphasis on physical indicators may unwittingly contribute to a reductionist approach that emphasizes the material and measurable over the non-material and nonmeasurable

One example: What is the value of work? Human dignity arises from our createdness by God rather than from the things we create or consume.

PowerlessnessPowerlessness

Tembo wanapopigana nyasi huumia

Discussions of the political economy of poverty reduction tend to focus on corruption and autocratic behavior abroad.

But what about the power of greed and superficial pandering to base interests in our own communities and politics?

“Silent violence”

VulnerabilityVulnerability

An understanding of risk and vulnerability is central to a solid understanding of poverty.

Economists’ conceptualization and analytical treatment of risk nonetheless leaves much to be desired.

Overemphasis on covariate risk

Moral UnderpinningsMoral Underpinnings

Much vulnerability, powerlessness and chronic material poverty arises due to coordination and cooperation failures in poor communities.

Where generalized morality and trust deteriorate, powerlessness, vulnerability and poverty increase.

ConclusionConclusion

“Our deepest fear is not that we are inadequate.Our deepest fear is that we are powerful beyond measure.It is our light, not our darkness, that most frightens us.We ask ourselves, who am I to be brilliant, gorgeous, talented,

or fabulous?Actually, who are you not to be?You are a child of God.Your playing small doesn’t serve the world.There is nothing enlightened about shrinking so that other people

won’t feel insecure around you.We were born to make manifest the glory of God that is within us.It is not just in some of us; it is in everyone.As we let our own light shine, we unconsciously give other people

permission to do the same.As we are liberated from our own fear;Our presence automatically liberates others.”

Nelson Mandela Inaugural Address, 1994

Thank you!Thank you!