Trapped By Poverty? Here's The 4 Hidden Keys To Escape

How to escape the "poverty trap" using economic thinking.

Dear friends, good afternoon! Welcome everyone to ReadVault Club, I am Tom Niklas, a seasoned writer and book reviewer. Please subscribe to me and join us in reading 52 books a year together.

A few years ago, I was struggling financially and decided to investigate the reasons behind it. I came across a book with an intriguing title, "Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty." I bought it and started reading, only to discover that the people in the book were much poorer than I was. The authors studied families living on less than $1 daily, so I put the book aside. Then, in 2019, the two authors won the Nobel Prize in Economics for their work on the book. Wow! I quickly picked it up and reread it.

I realized that my perspective had been too narrow. When I first read the book, I was only thinking about myself. How could I get rich? How could I escape poverty? But there are so many more people in the world who need our help and understanding. How can we help those living in extreme poverty break free from their situation? The book's influence grew significantly after these two economists won the Nobel Prize.

The book offers many insights that we often overlook. Let's start with the concept of "poverty traps."

We all know the term "poverty," but what exactly is a poverty trap? Some poor people live below the poverty line, represented on a graph with time on the horizontal axis and income on the vertical axis.

If someone is stuck in this quadrant, their future income will never exceed their current income, and their current income will continue to decrease. This keeps them trapped in poverty. If we can help them rise above the poverty line, their future income may exceed their current income, and they can start to improve their situation.

Once a wealthy man believed that poor people should start businesses. He thought that if he were poor, he could pull himself up from the bottom. He even made a documentary about it, following him as he tried to live on the streets. He set strict rules for himself: no credit cards, no money from home, and he had to start from scratch. He figured he was strong enough to just get a job and make it work. The film crew followed him to see if he could succeed. After a few months, he broke down.

The man said it was impossible. He could only earn a few thousand HK dollars a month in Hong Kong, and that wasn't enough to support himself, let alone invest, get more education, or do anything else. The crushing pressure of poverty was too much for him to bear. This is what we call a poverty trap.

In the past, many aid organizations simply gave money or goods to the poor, hoping to help them escape poverty. If only, it was that simple.

But after 15 years of research, these two authors visited almost every poor region and country in the world and discovered that many issues are more complex than we thought. There might not even be such a thing as a poverty trap in all cases.

After reading the book, I realized that poverty traps exist in certain regions, situations, and cultural contexts. But more often than not, it's not a poverty trap issue. People can rise above the poverty line, but they still can't escape poverty.

Take the example of distributing mosquito nets. We know that mosquito nets can reduce malaria in Africa. If a child doesn't get malaria as a child, they will have a much higher income as an adult because they will be healthier.

So many people went to Africa to distribute mosquito nets, giving them away for free to the locals. A mosquito net only costs a few dollars, and they can last for five years. They thought that by giving them away, they could solve the problem.

But after they distributed the nets, they found that many Africans turned them into wedding dresses. They altered the nets and wore them as clothing. They didn't see the value in using them as mosquito nets; they thought wearing them as clothes was more important.

Others, after receiving the first net for free, wouldn't buy them even when they were sold cheaply at their doorstep. They thought that since they got the first one for free, they shouldn't have to pay anymore.

So, some people came up with the idea of selling the nets at a discount. They would subsidize the cost, selling a $4 net for $2. Would that work? Some economists even tried selling them at full price and then giving a reward, like rice or grain.

We think of charity as simply giving things to people, but it's not that simple. It's a highly specialized field. Even something as seemingly straightforward as distributing mosquito nets requires a deep understanding of people's needs and behaviors.

We need to know how they view these things. And there's another factor: when people receive things for free, they don't value them as much. They don't invest in them, and they don't take care of them.

This book's greatest contribution is its in-depth exploration of various situations and the solutions that work in each case.

Let's start with the most basic issue facing the impoverished: food. When we think of poverty, we think of hunger, right? In 2009, about a billion people worldwide went hungry, unable to get enough to eat.

Now, it's a known fact that the number of children a person has depends on their economic situation. The poorer they are, the more kids they tend to have. On the flip side, wealthier folks usually have fewer children. Why? Raising kids is a lot of work and can be quite expensive.

Take this guy named Pakir, for example. He's an Indonesian man with 13 kids. Why did he have so many? Well, it was an economic investment. He didn't know which child would be able to support him in his old age, so he figured he'd have a bunch of kids. Plus, in an agricultural society, if you don't have enough men in your family, your voice doesn't carry much weight in the village.