Portfolios of the Poor: How the World’s Poor Live on $2 a Day People (even experts) commonly accept that the ultra-poverty can be defined as living on “a dollar a day,” but rarely question what that means exactly. This book attempts to expose the financial lives of the world’s poor, which are vastly more complex than one would assume. For one, life on a dollar a day does not imply that households receive a dollar on a daily basis. According to this book, if they did receive regular and reliable payments, their household finances and strategies to preserve them would be vastly different.
Like the poor everywhere, families in the slums of Bangladesh South Africa pull money from a variety of sources which pay irregularly and with varying amounts. Often lacking access to formal banking services, they cleverly participate in strategies to lend money to friends, consider investment in a number of service based businesses and will participate in local finance cooperatives protect their meager earnings. Small finance cooperatives will even act as lenders to extract profit from their savings, acting as small, functioning banks. Poor people will paradoxically borrow rather than save, preferring to pay a premium for access to lump sum payments and prefer being compelled to pay back a loan, rather than risk having to discipline themselves to not spend savings on daily needs. and will even take loans in lieu of saving, paying a premium for lump sum payments which relieve them from having to save.
Local moneylenders charge absurdly high interest rates when calculating them on an annualized basis, but the authors find that people rarely hold the loan more than a month, so that the “interest rate” can actually be viewed more correctly as a fee for service. Micro-lending (which really amounts to unsustainable charity) is seen as less preferable than micro-finance, as poor people need not only access to capital, but also safe places to park their savings and the possibility of earning interest on them. The people in the surveys were often found to have assets which exceeded liabilities and nearly all households were found to be saving and investing wherever possible.
The authors point out three major problems with the finances of the poor the first of which is that incomes and payments are small. Second, they note that it is important to recognize that cash flows are unpredictable and the timing of payments uncertain. If people can’t plan, if they don’t know when the money will come. The most important factor hobbling the finances of the impoverished, is that the financial insturments available to them are insufficient to address either of the first two problems. Better financial tools would go a long way to improving the lives of the poor, who are often proactive with their finances.
In short, the financial lives of the poor are vastly more complex than one would assume, and the savvy and rationale of impoverished households far deeper. A great read if you are interested in issues of poverty or finance. There are, of course, lessons here for how we view poverty domestically. BUY HERE
The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics I like Easterly because he doesn’t coddle developing countries. Though he’s quick to criticize Western aid efforts in Sub-Saharan Africa without recognizing aid’s successes (and deep complexity), he has interesting insights into why developing countries often fail, the reasons for which are sometimes rooted in domestic problems. Too much of the development literature infantilizes developing countries and excuses stupid behavior in favor of blaming the “Evil Empire,” rather than taking a hard look at why some countries continue to fail and why others succeed. The worst disservice we can do to poor countries is to assume they are like the starving, helpless children presented in advertisements to raise money for charitable causes.
I also like Easterly because he recognizes that private sector development is absolutely essential to growth in developing countries and that the current model of development, which often relies on an assumption that the poor are happily poor and should remain as such, spare the occasional handout of antiquated technologies and inefficient top-down ideas. While I like Easterly’s perspective, I can’t say that I agree with much of the anti-aid literature that’s spring up around him, which is often myopic to the other extreme, and follows a typically tired narrative which paradoxically again denies developing countries of their own agency. BUY HERE
Brecht on Theatre: The Development of an Aesthetic I’m digging back into my past. For some odd reason, I have a German Literature degree, which means that I have a stack of famous works from the great Germanic writers and a few books on German theater. Brecht was always a favorite.
His confrontational ideas on the theater as a means for inspiring leftist political change may have gotten him exiled from Germany but they still resonate today. Were he alive, Brecht would have still found Hollywood in 2014 bankrupt and empty for it’s emphasis on the “magical” the presence of “hypnotic tensions.” Brecht sought to alienate his audience rather than involve them. To do this Brecht encouraged cigar smoking in theaters as a means of keeping it real. BUY HERE
I’m slowly waking up from the Christmas break and aching from shoveling all this snow.
I read a lot of news media but, in terms of total number of sources, I read more blogs than anything else. Here are my favorites for 2013, in no particular order.
1. The Big Picture - Barry Ritholz works in finance. Unlike some of his colleagues he is human, rather than reptilian. He gives great and reasonable financial advice, much of which centers around completely ignoring media reporting on finance and investing trends. He’ll tell you to do boring things, like pick something you’re into and stick with it for the long haul. Though he works in finance, he’s immensely interested in all of its problems. Plus, he posts great reading lists on a daily basis.
2. Noahpinion - Noah Smith is an assistant professor of finance at Stony Brook University. He writes for the Atlantic and others but also writes a great blog on finance and economics that isn’t so difficult for people like me to understand, but technical enough to maintain my interest.
3. Calculated Risk - Great blog on domestic economic issues which includes timely updates and a host of graphics to help you figure out what’s going right or wrong with the American economy.
4. Shisaku - Interesting blog on Japanese politics from Michel Cucek, a research associate at the MIT Center for International Studies. Japanese news isn’t always the best source for information on Japanese politics and my reading ability is far to slow to digest more interesting writing on the subject. This blog is a great resource.
5. Chris Blattman - Chris Blattman is an Assistant Professor of Political Science & International and Public Affairs at Columbia University. He studies poverty, political participation, the causes and consequences of violence, and policy in developing countries and writes a great blog on global issues.
6. Mark Maynard - I would feel bad if I didn’t list Mark here. Mark is a good friend. He wants to make his town a better place. To do this, he writes regularly on issues relevant to Ypsilanti, MI in addition to current happenings in liberal politics.
7. PLOS Global Health Blog - As it says. The posts are infrequent, but always worth it.
8. Africa is a Country - This has turned out to be one of my favorite sites of the year. Great articles on African popular culture, politics and history. Africa is a Country is a great sounding board for those enthusiastic about the Africa that has nothing to do with Bono’s starving kids and poor women.
9. Conscience of a Liberal – I have to say, I love Paul Krugman’s blog. He’s somewhat of a broken record (liquidity traps, the infallibility of Keynesian economics, “I told you so”) but it’s great to have a solider out there exposing the failings of Republican economic policy (assuming there is one).
10. Baobob (Economist) – I was hesitant to put this on the list as it’s from a magazine rather than an individual, but I do read it frequently and can recommend it as a great source for news and commentary on current events in Africa.
That was somewhat of a challenge. 4 blogs on finance/economics, 2 on Africa, 2 on global health/development, 1 on Japan and 1 on local issues. That kinds of sums me up.
Though I’ve ripped this off the Big Picture blog (which my good friend Chris introduced me to), I’ll repeat it again here (since it was ripped off the Fed of New York anyway).
I never considered the problem of having to physically move money (read: metal coins) around to make foreign investments. Moving it would be an incredible risk, as it would likely be stolen along the way. Turns out, you could just pay the money to the central bank in Rome, and the Romans would just deduct the amount of money you wanted to transfer from their tax collection in whatever region it was going to.
This is worth the read. I promise I’ll write something of substance after I’m done dissertating.
Historical Echoes: Cash or Credit? Payments and Finance in Ancient Rome
Marco Del Negro and Mary Tao
Imagine yourself a Roman citizen in the 1st Century B.C. You’ve gone shopping with your partner, who’s trying to convince you to buy a particular item. The thing’s pretty expensive, and you demur because you’re short of cash. You may think that back then such an excuse would get you off scot-free. What else can you possibly do: Write a check? Well, yes, writes the poet Ovid in his “Ars Amatoria, Book I.” And since your partner knows it, you have no way out (the example below shows some gender bias on Ovid’s part. Fortunately, a few things have changed over the past 2,000 years):
But when she has her purchase in her eye,
She hugs thee close, and kisses thee to buy;
“Tis what I want, and ‘tis a pen’orth too;
In many years I will not trouble you.”
If you complain you have no ready coin,
No matter, ‘tis but writing of a line;
A little bill, not to be paid at sight:
(Now curse the time when thou wert taught to write.)
In a previous Historical Echoes post, we describe some of the characters in early Roman high and low finance. Here, we look at their modus operandi.
Large sums of money changed hands in Roman times. People bought real estate, financed trade, and invested in the provinces occupied by the Roman legions. How did that happen? Cicero writes, in Epistulae ad Familiares 5.6 and Epistulae ad Atticum 13.31, respectively: “I have bought that very house for 3.5 million sesterces” and “Gaius Albanius is the nearest neighbor: he bought 1,000 iugera [625 acres] of M. Pilius, as far as I can remember, for 11.5 million sesterces.” How? asks historian H. W. Harris (in “The Nature of Roman Money”)–“mechanically speaking, did Cicero pay three and half million sesterces he laid out for his famous house in the Palatine . . . . That would have meant packing and carrying some three and half tons of coins through the streets of Rome. When C. Albanius bought an estate from C. Pilius for eleven and half million sesterces, did he physically send the sum in silver coins?” Harris’ answer is: “Without much doubt, these were at least for the most part documentary [i.e., paper] transactions. The commonest procedure for large property purchases in this period was the one casually alluded to by Cicero [De Officiis 3.59] . . . ‘nomina facit, negotium conficit’ . . . provides the credit [or ‘bonds’–nomina], completes the purchase.”
What exactly are these nomina?–from which, by the way, comes the term “nominal,” so commonly used in economics. In his Ph.D. dissertation “Bankers, Moneylenders, and Interest Rates in the Roman Republic,” C. T. Barlow writes (pp. 156-7): “An entry in an account book was called a nomen. Originally the word meant just that–a name with some numbers attached. By Cicero’s day . . . [n]omen could also mean “debt,” referring to the entries in the creditor’s and the debtor’s account books.” And this “debt was in fact the lifeblood of the Roman economy, at all levels . . . nomina were a completely standard part of the lives of people of property, as well as being an everyday fact of life for a great number of others” (Harris, p. 184). Pliny the Younger writes, for example, (in Epistulae 3.19): “Perhaps you will ask whether I can raise these three millions without difficulty. Well, nearly all my capital is invested in land, but I have some money out at interest and I can borrow without any trouble.”
For concreteness, say that some fellow, Sempronius, owes you one million sesterces. You–or in case you’re a wealthy senator, or eques, your financial advisor (procurator–Titus Pomponius Atticus was Cicero’s)–would record the debt in the ledger. What if you suddenly needed the money to buy some property? Do you have to wait for Sempronius to bring you a bag with 1 million sesterces? No! As long as Sempronius is a worthy creditor (a bonum nomen [see Barlow, p. 156]; in the modern parlance of credit rating agencies, a triple-A creditor), you’d do what Cicero says: transfer the nomina, strike the deal. For example, Cicero writes to his financial advisor Atticus (Ad Atticum 12.31): “If I were to sell my claim on Faberius, I don’t doubt my being able to settle for the grounds of Silius even by a ready money payment.” As Harris (p. 192) observes: “Nomina were transferable, and by the second century B.C., if not earlier, were routinely used as a means of payment for other assets . . . . The Latin term for the procedure by which the payer transferred a nomen that was owed to him to the seller was delegatio.”
So, we’ve seen that Romans could settle payments by transferring nomina. But was there a market for nomina, just like there’s one today in, say, mortgage-backed securities? According to both Barlow and Harris, the answer is yes. They claim that the Romans took the transferability one step further and essentially turned “mere entries in account books” into “negotiable notes” (see Barlow, p. 159, and Harris, p. 192). Not everyone agrees. The economic historian P. Temin (“Financial Intermediation in the Early Roman Empire”) also reports evidence of assignability of loans, opening the possibility of “wider negotiability, but,” he adds, “we do not have any evidence that it happened” (p. 721). Yet some indirect evidence is there. For instance, the idea of negotiable notes appears to be well understood by Roman jurists, such as Ulpian (The Digest of Justinian XXX.I.44): “A party who bequeaths a note bequeaths the claim and not merely the material on which the writing appears. This is proved by a sale, for when a note is sold, the debt by which it is evidenced is also considered to be sold.”
What if you had to transfer money to somebody in a different part of the globe? As the Roman dominions expanded into Greece, Spain, North Africa, and Asia, Roman finance actually faced this logistical problem. If you’re in Rome and want to, say, finance Caius’ mines in Thapsus, North Africa, how do you get him the money? He needs the silver to buy material, slaves, and other things, but you’re naturally very reluctant to see your money sail away for Africa, as the chances of it getting there aren’t that high (see pirates, shipwrecks, etc.). “Permutatio, the transfer of funds from place to place through paper transactions, was Rome’s great contribution to ancient banking” (Barlow, p. 168). It worked as follows: The publicani were private companies in charge of tax collection in the provinces (as well as many other tasks; see “Publicani,” by U. Malmendier). They had a branch in Rome and one in Thapsus. So, you’d give them the silver in Rome (or transfer them some nomina) and they’d divert some of their tax collection in North Africa to Caius. This is also how the Republic would finance its public spending overseas. Since taxes were collected throughout the provinces, by trading claims on taxes Romans could transfer funds across the globe–or at least to the part of the globe they had conquered.
Interestingly, some historians measure the sophistication of Roman finance “by the extent banks were present” (Temin, p. 719). While it is true that we have no evidence of a 1st Century B.C. Wells Fargo, this may not necessarily imply lack of sophistication. Prior to the Great Recession in the United States, a large chunk of financial intermediation didn’t involve banks–it went through the “shadow banking system.” Roman high finance “functioned primarily on the basis of brokerage” (K. Verboven, “Faeneratores, Negotiatores and Financial Intermediation in the Roman World,” p. 12), and hence was a bit like a proto-shadow banking system, as we suggest in our prior post. Like the shadow-banking system in the United States, it was fragile. Going back to our earlier example, we note that if whomever you want to buy property from starts wondering about the creditworthiness of Sempronius, she will not accept his nomina in payment and will want cash. That’ll force you to call in the loan to Sempronius, who in order to pay you will call in his loan to Titus, and so on. But financial crises in ancient Rome are the subject of a future post.
We are grateful to Cameron Hawkins of the University of Chicago for help navigating the literature.