Robin Hanson advised me to read Banerjee and Duflo's "The Economic Lives of the Poor" in the latest issue of the Journal of Economic Perspectives, and I wasn't disappointed. Long story short: People who live on $1 a day spend a shocking amount on alcohol, tobacco, and "festivals," and could make a lot of additional money by investing small amounts in their businesses - or just by relocating.
The deeper story, though, is what's really interesting. Banerjee and Duflo endorse the old-fashioned story that, to a large degree, the root cause of poverty is irresponsibility and a short time horizon. Of course, they don't put it like that. They sugarcoat it using the language of "self-control":
[I]f you have money at hand, you are constantly resisting temptation to spend: to buy something you want, to help someone who you find difficult to say no to, to let your child have the sweet he wants so badly. This is probably especially true of the poor, because many of the temptations you are being asked to resist are things that everyone else might take for granted.
The poor seem quite aware of their vulnerability to temptation. In the Hyderabad survey, the respondents were asked to name whether there are particular expenses that they would like to cut. 28 percent of the poor named at least one item they would like to cut. The top item that households would like to cut is alcohol and tobacco (mentioned by 44 percent of the households that want to cut on items). Then comes sugar, tea, and snacks (9 percent), festivals (7 percent), and entertainment (7 percent).
This is one place where self-knowledge does not help. Knowing that you face self-control problems makes you even less likely to try to save: You know that it would probably just end up feeding some future indefensible craving, and the machine that you so want to save for will never actually be acquired. Being naïve might actually help―you might just be lucky and save enough to buy the machine before the temptation gets to you.
Now let me hasten to add that I don't think lack of bourgeois virtue is the main reason why Africans are so much poorer than Americans. Third Worlders living on $1 a day would probably earn 50 times as much if the U.S. would just let them come here and get a job.
But the sad reality is that the First World won't be opening up its borders anytime soon. Is there anything that the world's poor can do in the meanwhile? Banerjee and Duflo inadvertently confirm that there is: Embrace the bourgeois virtues of responsibility and delayed gratification. If you're having problems due to lack of self-control, control yourself.