Mark D. White

In today's The Wall Street Journal, William Easterly, author of The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good and a tireless critic of traditional apporaches to global aid (see his Aid Watch blog), has a review of two recent books in the area: Dean Karlan and Jacob Appel's More Than Good Intentions: How a New Economics Is Helping to Solve Global Poverty and Abhijit V. Banerjee and Esther Duffo's Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty.

He praises both books for their "on their ground" mentality:

More Than Good Intentions and Poor Economics are marked by their deep appreciation of the precariousness that colors the lives of poor people as they tiptoe along the margin of survival. But I would give an edge to Mr. Banerjee and Ms. Duflo in this area—the sheer detail and warm sympathy on display reflects a true appreciation of the challenges their subjects face. Messrs. Karlan and Appel are at their best in addressing the subtleties of behavior and testing them in the psychology laboratory and in the field. They have produced a remarkably readable and credible analysis of the intertwining of irrationality and poverty.

This echoes Jonathan's work with his co-authors in Accepting the Invisible Hand, in which they discuss the need for context- and culture-specific considerations when designing aid programs. Easterly continues in this same spirit:

Unfortunately, the books also indulge another sort of irrationality: the demand for big, general statements even if you're discussing limited, context-specific matters. The authors criticize over-promising and generalizing in the aid business, but they too often do their own exaggerating when it comes to what their methods can deliver. Both books end with overselling, "five key lessons" (Banerjee and Duflo) or "seven ideas that work" (Karlan and Appel), ignoring their own previous cautions about sensitivity to context and the limits to each intervention. Other economists criticize overselling as a common fault of those who do these small experiments.

Along the way, Easterly also makes a similar point to one I often make regarding libertarian paternalism and "nudges": behavior judged irrational by an outside observer may well have completely reasonable explanations for the decision-maker himself or herself. He provides this example from one of the books:

In More Than Good Intentions, for instance, we meet Vijaya, a flower seller in Chennai, India, who makes daily payments on multiple loans she has taken out to pay for rent, school fees, flowers from wholesalers and other expenses. She pays several points in daily interest, and she has almost nothing left at the end of every day after making her loan payments. But in an interview she just indifferently says her money is in "rotation"—and makes no effort to save, even in tiny increments, so that she might pay off her debts and keep some of her profits.

However, from later in the review, Easterly commends the authors for investigating this further:

In addition to testing out ideas, such field work also has the benefit of letting researchers chat informally with poor people—conversation that can be thoroughly illuminating. What looks like irrationality may just be the failure of outsiders to fully appreciate the problem. The flower seller Vijaya reveals that she doesn't want to take money home: "Whatever I bring home, my husband drinks it up." Paying the moneylender (or maybe accepting microcredit!) is preferable to helping a spouse stay soused.

A tragic situation, to be sure, but not one that implies irrationality on Vijaya's part. Would that behavioral economists and libertarian paternalists might take the same time to consider the multifaceted and complex motivations and interests of people whom they would happily nudge in whatever directions they judge as rational.