From Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty by Abhijit V. Banerjee and Esther Duflo.
The bigger point is that a little bit of hope and some reassurance and comfort can be a powerful incentive. It is easy for those of us who have enough, living a secure life, structured by goals that we can reasonably confidently aspire to achieve (that new sofa, the 50-inch flat screen, that second car) and institutions designed to help us get there (savings accounts, pension programs, home-equity loans) to assume, like the Victorians, that motivation and discipline are intrinsic. As a result, there are always worries about being overindulgent to the slothful poor. Our contention is that for the most part, the problem is the opposite: It is too hard to stay motivated when everything you want looks impossibly far away. Moving the goalposts closer may be just what the poor need to start running toward them. (204)
This reminded of my post a few years back on some observations made by Charles Karelis:
Karelis calls the two types of utility “pleasers” and “relievers.” Oreos would be an example of pleasers and so would dollars for most economically stable people. Each additional unit brings pleasure but at a diminishing rate. Relievers work differently. Karelis asks us to imagine being on a picnic when suddenly we are stung by a bee, on the hand lets say. Our mind is now directed toward the pain in our hand to the exclusion of whatever other physical discomfort we may be experiencing. Karelis has one dab of salve at hand and he applies it to our bee sting. Our pain is relieved. The salve has a high degree of utility for us.
Now instead of one sting on the hand, we are stung on the hand and on the neck. There is still only one dab of salve. Its application to one sting will decrease the pain some but will still be left in considerable distracted discomfort. A second dab of salve would have more marginal utility than the first did.
But now let’s say we have six bee stings at various locations on our body and still only on dab of salve. The one dab of salve provides minimal relief for us. But each successive dab supplies an increasing quantity of relief.
So what if you woke up every day with six bee stings and you had been supplied with six dabs of salve to cover your next six days. Would you allocate them one a day across the next six days or would you use them all in one day to have at least one day out of the six pain-free? The chronic poor routinely choose the one blissful day. (Karelis draws on cases throughout human history to illustrate this preference. He recounts a case during a prolonged period of famine in Greece where half the population ate on one day and went hungry the next, while the other half ate and fasted in the reverse order, instead of everyone not having enough to eat every day.)
Therefore, the poor are rationally inclined to spend a small pile of money in one big bang. Buying an expensive set of clothes gets you esteem for at least a moment. Entertainment, gambling, or substance abuse provides at least temporary distraction and relief. Experience tells you that there is an inadequate supply of relievers around so when you have the fortune to get an amount that gives you complete temporary relief, do it!
I think the biggest barrier to economic develpment in poor communities is not an economic barrier. It is the absence of hope that things can ever be different than they are today.
