Hello everybody, I am your teacher - Li Yongle.
Somebody PM’ed me recently
That he borrowed thousands of yuan from an online loan in order to buy a high-end phone.
Then it became over ten thousand due to multiple compound interest.
He couldn’t pay it or even dare to speak with his family members
Not knowing why would he even buy this stuff.
Actually, many poor people are deeply fond of luxuries.
For example - spending lots of cash to buy a Louis Vuitton bag, buying a fur clothings or organizing a luxurious wedding.
Why are poor people particularly fond of luxury goods?
Not long ago, 2019 noble prizes in economics were granted to Abhijit Banerjee, Esther Duflo from Massachusetts Institute of Technology （MIT） and Michael Kremer from Harvard for their researches against poverty.
Today I would like to introduce their researches
To see if we can know more about the proverty through their studies.
First of all, there has been a debate about anti-proverty causes
whether the aids to the poors are worthwhile.
Are aids worth it?
Some be like: BS isn’t it? Of course they are
Otherwise they would starve to death.
However this conclusion is statistically invalid
Since decades ago the whole world aided Africa a lot.
Because sub-Saharan Africa is in extreme poverty.
Thus, we can draw a diagram:
Along with the time
The sum of aids to sub-saharan Africa will be becoming massively more and more
But - any change of African GDP during this period?
What if we draw African’s GDP on this diagram?
Will be like this:
This is the GDP in general. So, in the end, we realise, eh? Nothing happened.
Nothing changed, right
So its worthless
Some may say:
It is due to the corruption in Saharan’s government.
Politicians corrupted all the aids
That is why the aids don’t go to helping out the war-stricken people living in poverty, or they don’t go to building infrastructure.
So the aids were useless
Only cause their governments to become more corrupted
Some say people there have problem
because they will be depending on the aids
How so?
Meaning “I just don’t wanna work at all -
and you give me money - okay, why would I then work instead of waiting for your money?”
So they thought people were going to be dependable
If so,
We might as well stop aiding
There is no need to support
As support only cause the problem to worsen
But the problem is, if support stops, there might be two possibilities
Firstly :support really is useless
without aid Africans start to fend for themselves, their skill levels should improve, right? (draws rising GDP trend against time)
That is one possibility
But the second possibility is, without aid -
hunger will become/remain widespread, people dying everywhere
That is also possible (draws falling GDP trend against time)
if we really stop aid
what happens?
That is like in the Middle Ages
when one falls sick, he goes to worship and pray to gods
others might find a doctor or seek medication
so which is effective? is ask for medicine or ask the help from god
people don’t know, so what do we do?
Now medical advancements tell us we can do experiments.
What kind?
Random comparison. Take those who are almost equally sick
Separate into 3 groups
1 group seek doctor and medicine
1 group worship gods
3rd group as the control, they don’t do anything
Then compare which group of people recover
through this to find out which method is the most effective
So Duflo they all decided
just by watching the stats from their offices
they cannot solve the problem
they need to be immersed in the lives of those in poverty, understand how they live
to know what is the true reason causing poverty
So, they did many kinds of research
Built a poverty experiment lab - Abdul Latif Jameel Poverty Action Lab
Went deep into many many countries all over the world
Spent 20 years to consolidate their findings
and wrote a book titled Poor Economics
So alot of things we are discussing today
comes from the book
Firstly they discussed the issue of health
The main difference between the poor and the rich is the amount of wealth they have
But health is a factor that cannot be overlooked
Generally the rich are much healthier than the poor
As the poor don’t have the money for medical insurance
for medical checkups
no time for exercising
So their health condition is very bad
Every year there is 9 million people
who die before 5 years old
die at a young age
and these 9 million mostly come from the Sub-Sahara
If one isn’t healthy
he can’t work
can’t earn money
no way to escape poverty
So to solve poverty, they need to solve the health problems
So the book mentioned 2 things
One is vaccination
A lot of illnesses can be controlled by vaccines
Now we have very matured technologies
and we can give the poor people free vaccines
But in reality, there are 25 mil children yearly
without being vaccinated
which means they fall short on being vaccinated
they have no immunity
any infectious diseases and they die
So why aren’t they vaccinated when there is the technology
Is it because of a shortage of funds
Or is it the lack of awareness, thinking that vaccines are bad?
So they decided to investigate
They went to India
Banerjee’s hometown is in India
In India, there is a place called Udaipur
They did many investigations there
there were many many villages
in the big mountains
the percentage of people vaccinated is only 1%
only 1% completed all vaccinations
the rest did not
why not?
First reason, was it because of a lack of technology?
Nope, technology was ok
as the government provided them with the vaccination facility
as long as they go there
the professional nurses will perform vaccinations for them
Then what was not ok? No money, no funds? Nope
Vaccines were provided for free
You can get it at the vaccination facility without any costs
Since its free, then was it the lack of concern of parents for their children?
But they realise the parents were ok too, if children fall sick
parents bring them to the hospitals
spend a lot of money to cure them
So parents care about their children’s health
Then what was the reason for the 1%?
Why aren’t they vaccinated?
They formed a hypothesis
Maybe the parents thought that vaccination was too much work
What does that mean?
Menas this place had many villages
All scattered in high mountains
But the vaccination facility isn’t available in every village
Maybe there is the facility at this point
if you want to go you have to come here
Maybe you will take one day to climb over the mountains
and when you reach, the nurse is irresponsible
She didn’t come for work
Then you have to climb mountains again to get back
So in the end you lost a day of work
Losing a day’s work is no big deal to a rich man
but to a poor man
lost in a day’s work might mean that they don’t have food the next day
So they were trying to avoid that from happening
That is why they don’t go for vaccines
So is this thinking correct?
they need to investigate
in what way?
Firstly, they randomly picked some villages
Random villages
They are held as constant,
nothing is done to them
nothing
They only investigate whether people were vaccinated
those were the villages
Secondly, another random sample of villages were chosen
and I am going to do something
I think the reason is that vaccination is too much work
That is why you are not having vaccines
So they set up more vaccination facilities
found some volunteers
They let the volunteers to operate more vaccination facilities in the villages
They tell them ok you can come for vaccines
Also free
Just that you don’t have to travel so far anymore
Third, they found another sample of villages
random, all random
not only will I provide more vaccination facilities
when you come for vaccination, we will reward you
reward you with 1kg of beans, it’s cheap
If we say vaccines are harmful
then parents won’t come too, right?
So now we are telling you there’s a reward
see if you wanna come
what is the conclusion of the test?
the control group of villages also had some results
who brought their kids over the mountains
how many of them?
only 6%
not up to our expectations
Then what about the villages with more convenient facilities?
How many?
17%, that is already about 3 times more
Ok, so what about the last group with rewards?
the percentage of those vaccinated were 38%
We can compare and see that
with rewards,
the take-up rate of vaccines increased drastically
So he says, “I think the hypothesis is correct”
That the reason for not vaccinating
was that it was too far
we should have the facility in the villages, right?
At the same time, there is a reward of 1kg of beans
If you complete all the vaccinations
I give you a set of pots
then more people will come for vaccinations
Some say we shouldn’t give rewards
It increases the cost
It was supposed to be a right thing
But we have to reward and entice them to come for vaccinations
Isn’t that not suitable?
From Duflo’s research, she realise
That the method which involves rewards
is actually the cheapest
Some may think that is weird
How is it the cheapest?
Because first off 1kg of beans don’t cost much
That is one
Secondly, it greatly increases the coverage of vaccination
Initially, you need 1 year to reach this amount of coverage
Now you only need 1 month
The rest of the 11 months
You saved all the costs of hiring
From this point of view
rewarding is better than not
Duflo gave the government a suggestion based on her research
that is to incorporate rewarding into the process of providing vaccinations
that will increase the coverage of vaccination
and your citizens will healthier, right?
other than the problem of vaccination
there is another health problem that the poor face
what is the illness?
its malaria
malaria kills more than 900 thousand people each year
mostly in Africa
and mostly kids below 5
how is malaria transmitted?
by mosquitoes, right?
So we need to eradicate mosquitoes
or protect people from mosquitoes
with what? with mosquito nets, right?
So we actually have a very simple way to control malaria
using mosquito nets
it’s not expensive
a net treated with insecticide
good quality net costs about 10 USD
Some say, $10 can save a family, that is wonderful
So we just donate money to them
let them buy the nets
But some say no, we can’t give them the nets for free
if you give them for free
they might not use it properly, right?
They may use it for
fishing, or as a wedding dress, right?
Not the right use.
Moreover, if given free
they may grow reliant
and not buy the nets in the future
Next time they won’t buy it no matter the price,
they wait for free ones
that is called being reliant, right?
So is that true?
Duflo and friends say that they don’t know
they have to investigate
so they went to Kenya
they handed out vouchers in several villages
each vouchers were different
some vouchers gave free nets
some require a payment of 1 USD for the nets
some 2 USD
some 3 USD
she want to find out what is the effect
they drew a diagram, x-axis being price
with the vouchers
and how much more you need to pay, could be free
$1, $2, $3
even at the most expensive $3
it is still cheaper than the initial cost of 10 USD
means it is still subsidised
so look, how many will buy the nets with their vouchers?
how do they compare?
if its free, almost 100%
why, its free ofc
who doesn’t want?
If they need to pay $3, then the percentage falls
end up with this trend
about 20% here
about 20%
if they have to pay $3, there will still be people paying for it
so the main question is
how will they use it?
once they have the nets will they use it?
means those who got it for free
whether they use it or not
how will it compare with those who got it for $3?
according to the results, almost no difference
80% of those who took a net will use it for their homes
not as fishing nets
not as wedding gowns
80% will use it appropriately
whether they got the nets for free
or they paid $3
its the same results
In addition, they went to sell nets again in the second year
now they sell them at 2 USD
when they seel it at $2
they want to see
will those that have gotten free nets the first time buy?
will those who have paid $3 last time buy?
results show that whether those who had it for free
or they paid $3
the chances of them repurchases were similiar
second time was $2
so the percentage of people who buy it
is comparable to those who got it at $2 the first time
which means, whether you give them nets for free or not
once they got used to using the nets, they will still buy it the second time
it is not that they were used to having it for free
but they were used to using the nets
they discovered a better way of life
if we
place mosquito nets outside every Kenyan child’s bed
then we can effectively control malaria
even if we could only do so for half of them
the other half will benefit
as we can cut the transmission
these comparisons through investigations were the main feature of their research
let’s move on from health to education
education is another area where the rich and the poor differs gretly
those who had better education had a higher chance of being rich
he will also enable his offsprings to have better education
creating a positive cycle
if we increase the avg years of education in a country by 1 year
do y’all know what will happen?
the country’s GDP will increase by more than 30%
That shows how much education can do, right?
So we always emphasis the need for lifelong education
continuous learning in careers, etc.
9 years of mandatory education in China is going quite well actually
but many other developing countries aren’t doing enough
The first problem we face is
how to keep students in school
the problem of dropping out of school
Which is how to increase the duration of education
Increase the duration of education
That is the basic requirement, right?
Completing 9 years of mandatory education
must be better than only 3 years of mandatory education, right?
India isn’t doing very well
So they went to India again
to conduct comparison researches
they want to spend 100 USD
using $100
which way can increase the avg years of education most effectively?
For eg, maybe there isn’t enough teachers in the village
without enough teachers
there won’t be students, right?
so we use 100 USD to hire teachers
we are talking in terms of avg, so maybe you spent 1000 USD
divide by 10 to get 100 USD, right?
If we hire teachers
how much can we raise the avg years of education by?
according to the results, it can increase 1.7 years
it means that it could be one child who had 1.7 more years of education,
or two kids
each child had 0.85 more years of education
Finally, on average, 100 yuan was spent
As a result, a child’s 1.7 years of reading time was added
Do we have another way?
For example, I can provide free lunch
Say you don’t come to school
Because the family is poor
I tell you now
I have free lunch here
After you come, you can save money
You’re eating right?
Then in this way, some children can also be left in the classroom
This can stay for 2.8 years
It looks better than hiring a teacher, right?
Is there a better way?
He found that many children do not come to school because they are sick
Many are parasite roundworms
Then if we spend this money to deworm their children
If you don’t let them get parasitic disease
They might stay in class
So they used this money to remove insects
It turned out that this time when we found the pest control
Every $100 spent can increase the length of study for 28.6 years
So deworming is a very effective way
Is there any other way
Then there is another way to educate parents
Many children do not come to class because parents have problems with their ideas
It’s useless to say that parents feel that reading
Like buying a lottery ticket, say I have ten children
One or two of my ten children may be powerful
I just send him to study
No one else needs
After reading these two books, it is not necessarily possible to make money
If they learn very well, they can make a lot of money
I will be happy in my old age
If he didn’t make money,
I ended up spending the money in vain
In comparison
What do they think of reading as a lottery ticket?
But we have to tell him
In fact, reading is not buying a lottery ticket
But a solid investment
On average, if you read one more year, you read less than one year
Your salary will be 8% higher
This is statistical
And reading is also a gift from parents to children
It means you gave him birth
You should give him such a gift
He is not just a property of you
Not your money-making tool, right?
So our country is doing better in this respect
When we were young, we all knew that reading is both a right and an obligation
If you don’t send your child to school,
That’s right to catch the parents, right?
Then if you implement this concept to parents
How many years of study can be increased by 40 years
Because it doesn’t cost much to implement the concept
So if you spend $100,
You will find that you can increase the number of years of study by 40 years
This efficiency is very high, right
So Difero suggested that the Indian government
What should we do to keep our children in class
The first one, we should deworm the children, right?
If you don’t exterminate
Then he won’t come if the child is sick
Second, you need to educate your parents well
You educated him well
The child will stay in class
For example, when we recruit workers
Say more that we must have a degree or above
This way parents look at these girls
She can’t find a job if she doesn’t study
So let them go to school
Parents sent them over, right?
So they made such a suggestion to the Indian government
This proposal proved to be very effective in the end
Okay, it’s not enough to increase your education time.
You have to improve the quality of education
If you stay in class, right?
I didn’t do anything, I didn’t learn anything, what’s the use?
So we have to improve the quality of education
How to improve the quality of education
Why do these children have poor academic performance?
He also took a survey
What did you find?
The first very important reason is that there are many public schools in India
We know that public schools in India are bad by comparison, right?
Those teachers in this public school are absent for no reason
Teacher absenteeism
In other words, it’s time for your class
The teacher is not there, right? The teacher is absent
Teachers are absent, can students learn?
This is the first question
So they suggested that we should install these schools
Punch card system
If it is face recognition or fingerprint recognition
Anyway, I have to punch him through a method
So he won’t be absent from work
Only in this way can teachers stay in the classroom
Then students can improve, right?
This is the first thing
The second thing is that many people donated some
Such as textbooks for these children
It turned out that after the child got these books
No improvement in grades
Many fifth grade students in the countryside
I can’t read some of the first grade books
Say why
It turned out that their reading ability was impaired
They have reading difficulties
What is reading disorder
We know that the official language of India is English, right?
Since it is English
Then many of your textbooks are written in English
You give it this reading
He can’t even speak English
How does he read your book
If he can’t read your book, he can’t improve his natural grades.
So it’s no use donating a lot of books
So Difero found a lot of volunteers
Free tutoring for these kids
Teach them to read
It turns out that the effect is very good
After teaching them to read, their scores are soaring, right?
So in fact, although the education level of our country
Better than India
But we also face the same problem
Even our education resources are developing very unfairly
The level of teachers in the big cities is very high
There is no serious teacher in the village
How do we improve the overall quality of education?
Some people say we should donate equipment to the village
Donated a lot of computers, right?
Others say we should improve the living conditions of rural teachers
Others say we should send teachers from big cities
Go to the village to teach
Which one is better
Maybe we need an experimental method to reach a conclusion
This matter is actually a question I have been thinking about
Then we will finally return to the economic problem
We know the most essential difference between the poor and the rich is how much money
Diflo talks about how the poor live in his book
Full of risks
The life of the poor is full of risks
How to understand this sentence
Say why the life of the poor is full of risks
He said we can study such a curve
This abscissa is called today’s wealth
The ordinate of how much money you have today is called tomorrow’s wealth
Tomorrow’s wealth
So if your wealth today is the same as tomorrow’s wealth
Then your wealth will never change, right?
So it has such a diagonal
Every point above is an equilibrium point
For example, at this point, today’s wealth will be the same as tomorrow
So it will always be this wealth value
But this is not the case in real life
If you say you have a lot of money, you can expand reproduction, right?
You can make more money
But if you have less money
After you finish a meal, you will have no money
So you may become poorer
So the actual curve may be this S-shaped
This is a point made by Diflor
It is the actual curve of S shape
So what does this actual curve tell us?
For example, if there is someone who starts to be rich
His wealth today is at this point
At this time, he has more wealth tomorrow than today
So he was at this point the next day
He moved to the right, you know?
He was at this point on the third day and he moved to the right again
So in the end he will reach the equilibrium point on the right
Then we call this wealthy equilibrium
Actually when you first started
Any point on this curve can be
He will move little by little…
You will move to this wealthy equilibrium
But conversely, if there is a person who is poorer, what will happen
For example, he started at this point
At this time, he has less wealth tomorrow than today
He’s here right now do you know
Move little by little… what will happen to him in the end
Will move to this point in the lower left corner
And this point in the lower left corner is the balance of poverty
This is the so-called poverty trap
So why is the life of the poor full of risks
For example, the poor were originally in this position, right?
How can he accumulate wealth a little bit?
Finally get rich
But he was suddenly sick
I came here all of a sudden when I got sick
And fell into a poverty trap
Compared to the rich, it’s much better.
For example, he is in this position
If he is ill, he runs to this position
He just progressed a little slower
He will eventually reach wealthy
And the rich usually buy insurance for themselves
Whether it is health insurance or property insurance, he will buy insurance
But the poor I have a difficult life today
If you let me spend money for tomorrow, I will definitely not spend it
So now our country promotes serious medical insurance
Rural areas also need insurance
This is to prevent farmers from falling into the trap of poverty
Also, we have no principal
The poor have no principal
So it’s hard for him to reach the wealthy class quickly
Say if we can lend him money
Here we have to talk about a person whose name is Yunus
This Yunus is a Bangladeshi
Yunus is a university professor
His living conditions are actually good
There was a famine in Bangladesh in 1974
So Yunus went to the street to investigate
Take a look at the life of the poor
Found a framed peasant woman
He asked her how much money you can make in a day
She said I can’t buy bamboo without principal
So I borrow 22 cents a day to buy bamboo
Make a frame after buying bamboo
Then sell the box back to the person who loaned it
That’s because this is a transaction, right?
When you loan money, you must sell him the frame
I can earn 2 cents a day for 24 cents
Then Yunus asked
How much can you earn if I lend you 1 dollar
She said if you lent me a dollar
I can buy bamboo
I can make $1 a day
As a result, Yunus was shocked.
He said that we university professors should be ashamed
We were in the office all day
Bubble tea to study the economic situation
But there is no one dollar to lend to such a peasant woman
So he paid $27 and lent it to 45 peasants
Let them make bamboo baskets
Slowly developed into a small loan company
Grameen Bank
This Grameen Bank eventually won Yunus the Nobel Peace Prize
Because he helped a lot of civilians in Bangladesh
But some people say that microfinance companies
It seems not as sacred as you said
After many people borrowed money from microfinance companies
He did not expand his production
He bought the money to buy an iPhone
Even he had to cut off his kidney to buy an iPhone
Why the poor have such a big preference for luxury goods
Here we have another question
Is how the poor use money
He is still very different from the rich
An example is mentioned in the study of Diflo
This example is called TV is more important than food
What is TV more important than food?
He went to a village to observe
It turns out that this village is very poor
Many children lack nutrition
Looks very strange
Then he also found that many houses in this village have TV sets
He asked how did you buy this TV
He said I saved money for many years
I bought a TV
He said that now you don’t see enough nutrition
Why do you buy a TV
As a result, the poor man said that TV is more important than food
Why is this so
After analyzing, DiFlo thinks that the life of the poor is very boring
Because he is running for his life every day, if he has a little money
He wanted to make his life more interesting
It’s even less boring, so if you give him a little money,
He will eat a good meal, such as a braised pork, right?
Then if you give him more money
He would buy a TV
Even she might buy an LV bag
Or an Apple phone, right?
Maybe we think he should save this money
So you can get rid of the poverty trap little by little
And then reached the wealthy class
But you should pay attention to this will face great difficulties
For example, if the poor wants to save money, he may have to quit smoking
That means I have to smoke one less cigarette every day, right?
Also I may not be able to eat meat
I can’t buy the TV I want to buy
I can’t even get the phone I want
Then I will become rich gradually
You need to overcome your desires again and again
But the rich don’t need this
The rich want to smoke
So they are more likely to succeed than the poor
Some people say that being rich will increase patience
Watching the wealth increase a little bit
And poverty makes people impatient
For example, if you find Bill Gates
You say I increase your assets by 1% every day
Then he wants to turn you into a CEO, right?
But if you find a poor man
You told him that I increased your assets by 1% every day
He may ignore you
Because he has too little money
He did not believe he could cross this poverty trap
Reach the wealthy class
So it is essentially a question of confidence
In addition to talking about TV
In fact, another very bad phenomenon is the funeral
Then the poorer the place, the more grand the funeral will be.
What is a saying
I didn’t enjoy a good life when I called this person alive
If you die, you must be beautiful
But in fact the funeral has no meaning for the living
Instead, it will pull you into this poverty trap
Difero once did an investigation
Money for funerals in many places in Africa
Spend more than 40% of household income in a year
So this waste is actually quite serious
Maybe we think that the poor are poor
Is it because their willpower is not enough or their IQ is not enough
If we are a poor man with rich thinking
So sooner or later we will become rich
Is this right?
There is a best-selling author named Barbara in the United States
Hong Kong has a business tycoon who makes pants
Tian Beichen
In order to experience the life of the poor
And verify that you can change from poor to rich
They went to a place penniless to work
Sometimes I go to sweep the street
Sometimes they are waiters in the restaurant
They found that after working for more than ten hours a day
Still penniless
They have no way to achieve their ambitions
They also have no time to think
How can I make my life better
So the problem of poverty is definitely not something that can be explained by laziness
What we want to discuss is not whether we should assist the poor
It’s a question of how to aid
After the Nobel Prize in Economics won
Many people expressed their dissatisfaction
Because their work does not seem to be orthodox economics
But I think it is purely controversial and questioning
Does not solve the problem of poverty
Dufferlo’s work does point to a possible path
We need scientists looking up at the starry sky
We also need down-to-earth people
Only in this way can our society become better and better
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