Economics
The economic condition of a country strongly influences the living standards of the citizens. A well-planned economy with working economic systems can help to address diverse social issues such as poverty, poor health, and a low level of education. The book, the money machine: how the city works by Banerjee and Esther Duflo, examines the factors that contribute to poverty in various parts so the world. In the study, Banerjee and Esther Duflo use examples from countries in Asia and Sub-Sahara Africa to help understand the problem of poverty, and simple strategies that can help to counter the problem. On the other hand, the book, the money machine: how the city works by Coggan, examines the impact of financial systems on the growth of the economy. This paper examines the causes and solutions of poverty as covered by Banerjee and Esther Duflo. Additionally, the paper combines a chapter from the book by Coggan, to understand the solution to poverty.
Arguments presented by Banerjee and Esther
The first cause of persistent poverty is the poverty trap. Banerjee and Esther define the poverty trap as the self-reinforcing that makes poverty to be persistent. Poverty begets poverty (12). Poor people are likely to remain poor for a long time because of the challenges they experience as they try to rise to raise their social status. For instance, poor people lack the income to invest or grow their income, leading to extended poverty. Unlike the rich people, the poor people cannot afford quality education or healthcare services, an aspect that puts them spiraling as they work hard relying on their minimum income. Poor people face more risks such as high-stress levels, risks, and unemployment, which may affect their ability to make succeed. Banerjee & Esther Duflo argue that poor families do not necessarily lack food but rather they change their lifestyle at any given opportunity. For instance, when offered food aid of rice, poor people in China turn to overspend much of their money on meat and shrimp, and other expensive sugary food products (Banerjee & Esther Duflo 30). Based on his research from different countries, the book by Banerjee & Esther Duflo argued that poverty is contributed by the poor microeconomic decisions made by individuals.
Education is one of the effective strategies that can help counter persistent poverty. Banerjee & Esther Duflo argues that lack of education denies people an opportunity to access good jobs in the future (75). The lack of knowledge and skills means that poor people are likely to remain in the same position even when jobs are available. However, Banerjee & Esther Duflo argue that education can only be supplied when the demand for knowledge and skills is also high (80). Additionally, the governments should be involved in promoting education rather than solely living it to external donors. Banerjee & Esther Duflo argues that education should be qualified and able to equip learners with the set of skills or knowledge required. In this regard, Banerjee & Esther Duflo noted that government policy should be centered on enhancing learning infrastructure such as building schools, providing learning materials, and employing more teachers. Increasing investment in education can help enhance the future economic condition of a country.
Investment is another strategy that can be used to address the problem of poverty. Banerjee & Esther Duflo argued that most businesses owned by the poor do not earn an adequate amount of money, and do not grow to become full businesses (181). In regard, when provided the right support, small businesses can grow and help the poor to rise out of poverty. Banerjee & Esther Duflo notes that government-sponsored programs can help small business to expand their investment and therefore enhance growth (145). Most poor families fail to invest because of the huge interests that hinder them from accessing loans. In India, the government supports rural-based businesses with subsidized credit to expand their businesses. Banerjee & Esther Duflo notes that financial support programs should mostly be directed to women because of their ability to plan and support the entire family (119). Business support can help poor people have an extra income, which can help them meet their basic needs.
Then, the money machine: how the city works, and the book, Poor economics: Rethinking poverty & the ways to end it, virtually addresses a similar problem but takes different approaches. Banerjee & Esther Duflo takes the approach of household economy, whereby he examines how people can work their way out of poverty with no or limited support from the government. According to Banerjee & Esther Duflo, the problem with poor people is that their poverty is largely contributed by how they make misinformed decisions that affect their ability to come out of poverty.
On the other hand, Coggan examines the macroeconomic factors such as the operation of financial institutions in addressing various economic challenges. He starts by explaining the connection between financial systems and economic stability by pointing at the 2008 global financial crisis. The status of the economy has a direct influence on how small and big businesses operate and also influences their chance of success or failure. Coggan notes that the world economy is interconnected through global trade, which allows smooth operations of business through bi-lateral and multilateral agreements (17). Unlike Banerjee & Esther Duflo, who emphasizes individual ability to overcome external economic forces, Coggan states that international financial institutions such as the World Bank and international monetary fund have a huge responsibility of ensuring that there is global stability.
Future sight
There is a strong connection between the economic condition and the success of an individual financial position. As pointed out by Banerjee & Esther Duflo, the individual economic position is influenced by personal decisions combined with a lack of effective business support from the government. This means, the government has a huge responsibility of supporting small businesses through subsidized credits, which can help them to increase their revenue.
As pointed out in chapter three, the retail banks and building societies have the huge responsibility of ensuring that the economy remains stable. The retail and building societies are regulated by the Central Banks, therefore operate under the financial policy set by the central bank (Coggan 50). The central bank can increase or reduce reserves and interest demand to control the amount of money circulating in the economy. In this regard, the government should collaborate with financial institutions such as banks and building societies to enhance easy access to loans boost small businesses.
Conclusion
Lifting people out of poverty requires a collaborative approach between the government and the individuals. As pointed out in two books, the decisions made by individuals influence their ability to rise from poverty. Poor people mostly operate small businesses, which can take a long time to grow because of other external challenges. As pointed out in chapter three, financial institutions such as retail banks and societies can come in handy in supporting small business. The governments in poor countries should collaborate with financial institutions to provide low-interest loans, in addition to offering investment advice and training to small business owners.
