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PROFESSOR: So today, we're
going to be talking about

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00:00:30,840 --> 00:00:34,470
today and on Thursday, we're
going to be trying to answer

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00:00:34,470 --> 00:00:35,720
this question.

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00:00:37,950 --> 00:00:39,690
We're going to give a slightly
different answer

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00:00:39,690 --> 00:00:42,520
today than on Thursday.

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00:00:42,520 --> 00:00:47,480
Just to give you a road map of
where we are going, today is

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00:00:47,480 --> 00:00:51,400
more going to be about the
poverty trap in the sense that

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00:00:51,400 --> 00:00:54,680
Pak Solhin described
it to us in--

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00:00:54,680 --> 00:00:58,390
I think it was our first
lecture together.

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We started from Pak Solhin
description of a poverty trap,

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00:01:01,330 --> 00:01:05,170
which was really based on the
immediate impact of the

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00:01:05,170 --> 00:01:09,010
calories on your productivity
that very day.

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And then that's what we're going
to look at today, which

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00:01:12,590 --> 00:01:14,740
is try to answer
[? Daiquiri's ?]

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00:01:14,740 --> 00:01:18,930
question which I've been putting
off until now, which

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00:01:18,930 --> 00:01:22,340
is to say well, can we really
believe his story?

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And then on Thursday, we are
going to further our inquiry

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00:01:26,460 --> 00:01:31,010
into nutrition based poverty
trap by looking at things a

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00:01:31,010 --> 00:01:34,130
little bit more subtle than the
impact of calories on your

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00:01:34,130 --> 00:01:38,320
productivity the very next day
by looking at things like

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00:01:38,320 --> 00:01:42,720
micro nutrients and by looking
at things like feeding your

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00:01:42,720 --> 00:01:48,520
children or feeding pregnant
mother so that the kids that

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00:01:48,520 --> 00:01:52,220
they bear grow up as different
people, et cetera.

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00:01:52,220 --> 00:01:59,040
So that's kind of the road
map for our work

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00:01:59,040 --> 00:02:00,960
today and on Thursday.

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00:02:03,510 --> 00:02:10,680
At the end of last lecture,
we discussed the important

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00:02:10,680 --> 00:02:14,385
observation by Amartya Sen
that maybe there are no

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00:02:14,385 --> 00:02:17,500
famines in today's democracies,
that the large

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00:02:17,500 --> 00:02:22,960
big famines are gone or at least
that when we observe

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00:02:22,960 --> 00:02:25,330
them, they are due to some
really extraordinary

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00:02:25,330 --> 00:02:31,580
circumstances like a
war or a civil war.

39
00:02:31,580 --> 00:02:34,370
So there is a paper that I
didn't ask you to read because

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00:02:34,370 --> 00:02:35,860
it's a little long.

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00:02:35,860 --> 00:02:38,880
But the title is Is
Famine History?

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00:02:38,880 --> 00:02:43,720
And it sort of concludes that
it might be outside of

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00:02:43,720 --> 00:02:46,170
specific circumstances.

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00:02:46,170 --> 00:02:50,240
I should say that it's history
that might come back because

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00:02:50,240 --> 00:02:54,580
we have no idea what global
warming is going to do to the

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00:02:54,580 --> 00:02:58,620
productivity of agriculture,
and it may or may not be

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00:02:58,620 --> 00:03:01,470
sufficiently bad that
it might come back.

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But in the short term, we may be
in a situation where people

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00:03:06,240 --> 00:03:09,940
are not starving to death in
very large number like they

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00:03:09,940 --> 00:03:12,640
did in West Mongol outside
of some big

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serious political crisis.

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However, malnutrition and
under nutrition is not.

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00:03:26,560 --> 00:03:29,085
You can see the food and
agriculture organization

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that's based in Rome is in
charge of trying to monitor

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people's situation.

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They try to estimate how many
people are, they call, hungry.

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So they give periodically a
number of the number of hungry

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people in the world.

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And not long ago, they came
up with one billion.

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And that number, if you've seen,
has been all about the

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newspaper, one billion hungry
people in the world.

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To be completely honest, I am
not fully understood how they

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compute the number of hungry
people in the world, because I

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suppose you could ask them.

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But I don't think this is
what they are doing.

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I think they are trying to
estimate the calorie

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requirement that people
might need to fit.

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And the question is do we really
know what's a calorie

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requirement?

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And the answer to that is no.

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00:04:21,839 --> 00:04:24,730
We don't really exactly know
what's a calorie requirement.

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00:04:24,730 --> 00:04:28,425
So maybe this notion of what's
a hungry person is a little

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bit more hazy than we'd
like it to be.

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But there is not really
a lot of people

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who look very skinny.

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So do you know what the
bodymass index?

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The bodymass index is your--

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sorry, go ahead.

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AUDIENCE: 730 times your
height divided

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by your weight squared.

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PROFESSOR: 730?

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I didn't know that that's 730.

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00:04:49,920 --> 00:04:53,670
I think it's your weight
divided by your

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height squared in meter.

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00:04:56,460 --> 00:04:59,820
That's maybe the 730
coming from.

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00:04:59,820 --> 00:05:04,620
It's your weight in kilograms
divided by your height in

87
00:05:04,620 --> 00:05:06,870
meter squared.

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00:05:06,870 --> 00:05:09,120
So sometimes I'm trying to think
that this means that

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00:05:09,120 --> 00:05:14,855
we're trying to elongate the
person over a square meter and

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00:05:14,855 --> 00:05:19,450
see how fat that rectangle
would be.

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So that's the BMI.

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Do you know what the threshold
for the BMI is.

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00:05:25,914 --> 00:05:26,790
AUDIENCE: 18.5.

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00:05:26,790 --> 00:05:28,390
PROFESSOR: 18.5.

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So 18.5 is undernourished.

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00:05:30,500 --> 00:05:34,960
And there is a large number
of people we know who are

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undernourished by
this standard.

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00:05:39,390 --> 00:05:41,720
Also there is about 2 billion
people in the

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world who are anemic.

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That means they don't
have enough

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hemoglobin in their blood.

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Now all of anemia is due to
poor nutrition, but it's

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estimated that maybe half
of this is due to

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iron deficiency anemia.

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00:05:55,930 --> 00:05:57,660
So it's a deficiency
in one particular

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00:05:57,660 --> 00:06:00,010
micronutrient which is iron.

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00:06:00,010 --> 00:06:03,090
So that's about one billion
people who are anemic due to

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00:06:03,090 --> 00:06:06,760
some deficiency in iron
in their diet.

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00:06:06,760 --> 00:06:08,970
Is there deficiency in
iron or difficulty in

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00:06:08,970 --> 00:06:11,350
absorbing the iron?

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00:06:11,350 --> 00:06:14,090
A lot of these anemic
people is in India.

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00:06:14,090 --> 00:06:19,030
And sadly, Indians combine the
fact that many of them are

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00:06:19,030 --> 00:06:26,760
vegetarian and their diet is
rich in rice which is rich in

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00:06:26,760 --> 00:06:29,140
phytates, which is an inhibitant
for the absorption

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of iron, which is one reason
why the rate of anemia is

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particularly high in India, is
that on the one hand, they get

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less iron in their diet than
other people at comparable

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00:06:40,460 --> 00:06:42,770
level of calorie intake
just because those

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00:06:42,770 --> 00:06:44,500
come less from meat.

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00:06:44,500 --> 00:06:47,190
Then on the other hand, they
are less good at absorbing

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00:06:47,190 --> 00:06:48,440
them due to the rice.

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00:06:51,330 --> 00:06:56,010
There was a large increase
in food prices in 2006.

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And then again, they collapsed
during the crisis.

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And they increased again
in 2010 to be

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00:07:01,960 --> 00:07:04,900
almost at 2008 level.

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And there are two consequences
of an increase in food prices

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on those of the poor who are net
consumer of food, that is

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those who produce less
than they consume.

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Those are, for example,
the urban poor.

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00:07:20,590 --> 00:07:25,400
And those are on the one hand,
a large proportion of the

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00:07:25,400 --> 00:07:26,320
budget of the poor.

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00:07:26,320 --> 00:07:28,730
A larger proportion of the
budget of the poor is spent on

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00:07:28,730 --> 00:07:33,980
food, so an increase in the
price of food affect the

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00:07:33,980 --> 00:07:38,063
poorest more than
proportionally, compared to

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any other source of inflation.

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So if the source of inflation is
sort of a general increase

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00:07:43,900 --> 00:07:47,780
in priced or it's driven by
the price of housing, then

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00:07:47,780 --> 00:07:49,620
that affects everybody the
same or that might

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00:07:49,620 --> 00:07:51,160
affect the rich more.

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00:07:51,160 --> 00:07:54,670
But if the inflation is as
it is today, driven by an

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00:07:54,670 --> 00:07:57,510
increase in the price of food,
then it affects more the

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00:07:57,510 --> 00:08:01,550
people who are relying the
most, of course, on food.

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00:08:01,550 --> 00:08:03,180
And that's the first story.

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00:08:03,180 --> 00:08:06,490
That's one reason why
organizations like the World

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00:08:06,490 --> 00:08:10,060
Bank, the UN, they FAO are
practically worried about an

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00:08:10,060 --> 00:08:12,500
increase in food prices,
because that's

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00:08:12,500 --> 00:08:14,400
disproportionately affecting
the poor.

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00:08:14,400 --> 00:08:16,700
And it's also disproportionately
affecting

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the urban poor, which may be one
of the many reasons that

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have led to the unrest that
you observe today in the

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Middle East.

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The reason why I'm mentioning
that is that in 2008, at the

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height of the previous increase
in food prices, there

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00:08:35,155 --> 00:08:40,200
were food riots in Egypt that
never had achieved the kind of

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00:08:40,200 --> 00:08:45,320
intensity of what we saw in the
last few weeks, but were

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00:08:45,320 --> 00:08:48,520
clearly and very directly
prompted by the price of food.

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00:08:48,520 --> 00:08:54,220
And here, the whole rhetoric
of the revolt was framed

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00:08:54,220 --> 00:08:57,910
around political reform, but it
is not impossible that part

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00:08:57,910 --> 00:08:59,910
of the reason why so many
people, in particular in urban

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00:08:59,910 --> 00:09:06,260
centers, were willing to
spending so much time outside

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00:09:06,260 --> 00:09:09,380
protesting is because they were
profoundly unhappy with

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00:09:09,380 --> 00:09:11,860
the increase in the
price of food.

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The second reason why we might
be worried about an increase

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00:09:15,130 --> 00:09:18,620
in the price of food is if we
take Pak Solhin's story

165
00:09:18,620 --> 00:09:23,190
seriously and we are wondering
that this increase in hunger

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00:09:23,190 --> 00:09:25,415
is going to lead to some
vicious circle.

167
00:09:25,415 --> 00:09:28,864
So If you read the World
Bank document about--

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00:09:28,864 --> 00:09:33,630
the World Bank's job, in a
sense, is to raise money for

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00:09:33,630 --> 00:09:35,010
developing countries.

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00:09:35,010 --> 00:09:38,220
So part of the World Bank's
communication department job

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00:09:38,220 --> 00:09:40,840
is to be slightly alarmist, so
we need to take everything

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00:09:40,840 --> 00:09:42,930
they say with a pinch of salt.

173
00:09:42,930 --> 00:09:46,680
But one of the thing that they
would very frequently say is

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00:09:46,680 --> 00:09:48,190
the price of food increase--

175
00:09:48,190 --> 00:09:49,790
that makes the poor poorer.

176
00:09:49,790 --> 00:09:52,480
That makes them more difficult
for them to get enough

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00:09:52,480 --> 00:09:55,090
calories, which means they
can't work as hard, which

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00:09:55,090 --> 00:09:58,370
means they will be plunged
back into poverty.

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00:09:58,370 --> 00:10:04,810
And so this is the story that
Pak Solhin told us in our

180
00:10:04,810 --> 00:10:05,430
first lecture.

181
00:10:05,430 --> 00:10:10,580
And that's what I want to
investigate with you today,

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00:10:10,580 --> 00:10:13,620
whether we have reasons to be
worried about this kind of

183
00:10:13,620 --> 00:10:18,060
immediate vicious circle.

184
00:10:18,060 --> 00:10:21,707
So I want to give us a quick
refresher of what's Pak

185
00:10:21,707 --> 00:10:23,970
Solhin's story.

186
00:10:23,970 --> 00:10:28,230
So with your daily wage, it's
a short term nutrition, a

187
00:10:28,230 --> 00:10:30,010
nutrition based poverty trap.

188
00:10:30,010 --> 00:10:31,930
With your wage, you buy food.

189
00:10:31,930 --> 00:10:34,890
That gives you strength, and
allows you to get some more

190
00:10:34,890 --> 00:10:37,070
wages at the end.

191
00:10:37,070 --> 00:10:39,960
So you buy more food, and
that gives you strength.

192
00:10:39,960 --> 00:10:41,130
And you have more wages,
et cetera.

193
00:10:41,130 --> 00:10:44,790
And that's how you survive
maybe on a daily basis.

194
00:10:44,790 --> 00:10:48,410
So that means that it creates
a relationship between how

195
00:10:48,410 --> 00:10:53,530
much you start from one fine
evening and what is your

196
00:10:53,530 --> 00:10:54,610
income tomorrow.

197
00:10:54,610 --> 00:10:57,100
And that also means that it
creates a relationship with

198
00:10:57,100 --> 00:11:00,930
the wage level and your ability
to do any work at all.

199
00:11:00,930 --> 00:11:04,880
So Pak Solhin's story was that
the wage had dropped because

200
00:11:04,880 --> 00:11:08,280
of the increase in input prices
and the uncertainty

201
00:11:08,280 --> 00:11:10,520
that the farmer had about
whether they were going to be

202
00:11:10,520 --> 00:11:13,590
able to raise their output
prices corresponding.

203
00:11:13,590 --> 00:11:17,280
That had led to a decrease in
the wage at the same time as

204
00:11:17,280 --> 00:11:19,775
there was an increase in the
food prices, so big decrease

205
00:11:19,775 --> 00:11:23,340
in the real wage in term of the
food entitlement of a day

206
00:11:23,340 --> 00:11:26,650
of work as Amartya Sen would
say, which means that if you

207
00:11:26,650 --> 00:11:29,510
took this food entitlement and
you had nothing else to

208
00:11:29,510 --> 00:11:32,815
supplement it with, this just
was not enough to give you the

209
00:11:32,815 --> 00:11:35,710
strength to do the work
to earn that wage.

210
00:11:35,710 --> 00:11:38,580
So that means that someone like
Pak Solhin that had no

211
00:11:38,580 --> 00:11:42,330
extra resources was not
able to work at all.

212
00:11:42,330 --> 00:11:47,376
So that creates an inequality
among people.

213
00:11:47,376 --> 00:11:50,840
Take Pak Solhin and imagine
that, in fact, he also had a

214
00:11:50,840 --> 00:11:52,550
little piece of land.

215
00:11:52,550 --> 00:11:56,240
Then what could he have done
with this little piece of land

216
00:11:56,240 --> 00:11:57,490
once the wages had gone down?

217
00:11:59,624 --> 00:12:00,580
Ben?

218
00:12:00,580 --> 00:12:02,690
AUDIENCE: Sell some of it.

219
00:12:02,690 --> 00:12:05,660
PROFESSOR: So he could have sold
some of it to get money.

220
00:12:05,660 --> 00:12:10,695
Or he could have rented some
of it and get money.

221
00:12:10,695 --> 00:12:13,470
So suppose he rents some
of it and gets money?

222
00:12:13,470 --> 00:12:18,170
So he starts the morning with
1000 rupee he has from the

223
00:12:18,170 --> 00:12:20,110
rent of his field.

224
00:12:20,110 --> 00:12:24,980
And that can be complimented
with whatever wage he's earned

225
00:12:24,980 --> 00:12:26,550
yesterday for his work.

226
00:12:26,550 --> 00:12:30,140
And that might be enough to give
him the strength to do a

227
00:12:30,140 --> 00:12:31,500
day of work.

228
00:12:31,500 --> 00:12:35,400
So if you compare Pak Solhin to
his brother, for example--

229
00:12:35,400 --> 00:12:37,010
he has a brother in
the story, right?

230
00:12:37,010 --> 00:12:39,880
If you compare Pak Solhin with
his brother, who had a piece

231
00:12:39,880 --> 00:12:42,980
of land, they might be exactly
similar in term of their

232
00:12:42,980 --> 00:12:45,620
underlying body and their
strength, et cetera.

233
00:12:45,620 --> 00:12:49,460
But the fact that one of them
has a piece of land allow them

234
00:12:49,460 --> 00:12:52,160
to work, and therefore they
start with a little bit more

235
00:12:52,160 --> 00:12:57,650
non-labor income, which gives
them much more labor income.

236
00:12:57,650 --> 00:13:02,380
So the existing inequality
in non-labor income is

237
00:13:02,380 --> 00:13:07,040
strengthened by the inequality
in labor income, which is very

238
00:13:07,040 --> 00:13:09,900
different from what we would
see in our standard models

239
00:13:09,900 --> 00:13:12,940
where the richer people would be
less likely to work because

240
00:13:12,940 --> 00:13:15,490
they already have the non
labor income money.

241
00:13:15,490 --> 00:13:19,540
So the labor market would serve
to make people more

242
00:13:19,540 --> 00:13:22,590
similar rather than
less similar.

243
00:13:22,590 --> 00:13:24,460
So that's the story
he told us.

244
00:13:24,460 --> 00:13:28,020
And as we saw last time, the
necessary condition for such a

245
00:13:28,020 --> 00:13:31,050
poverty trap is that the
capacity curve, which relates

246
00:13:31,050 --> 00:13:34,325
your income to that, your
income tomorrow via the

247
00:13:34,325 --> 00:13:37,780
biology of the body, has this
S shape curve that we

248
00:13:37,780 --> 00:13:41,670
discussed that intersects below
the 45 degree line, then

249
00:13:41,670 --> 00:13:44,180
at some point crosses it
and then comes back.

250
00:13:44,180 --> 00:13:46,520
So we are not going to go back
to that, because we saw it in

251
00:13:46,520 --> 00:13:47,770
detail last time.

252
00:13:50,560 --> 00:13:52,175
That was supposed to
be the shape again.

253
00:13:52,175 --> 00:13:54,210
It doesn't want to come back.

254
00:13:54,210 --> 00:13:57,760
So the S shape is made
of two relations.

255
00:13:57,760 --> 00:14:00,650
The S shape is the relationship
between income

256
00:14:00,650 --> 00:14:04,930
today and income tomorrow,
midrow since I can't have it

257
00:14:04,930 --> 00:14:06,180
on the slide.

258
00:14:20,060 --> 00:14:25,535
So this is income today
and income tomorrow.

259
00:14:31,050 --> 00:14:34,370
And so the S shape is actually
not one function, it's the

260
00:14:34,370 --> 00:14:36,510
product of two functions.

261
00:14:36,510 --> 00:14:41,140
One is given how much income you
have, how much calories do

262
00:14:41,140 --> 00:14:43,080
you decide to eat?

263
00:14:43,080 --> 00:14:46,400
And then the calorie
that you eat--

264
00:14:46,400 --> 00:14:48,960
how much productive
do that make you?

265
00:14:48,960 --> 00:14:54,590
So if we write it in math, it's
like there is income,

266
00:14:54,590 --> 00:15:01,290
nutrition is equal to g,
function g of income today.

267
00:15:05,540 --> 00:15:08,600
Because you get your wages and
then you eat some good meal.

268
00:15:08,600 --> 00:15:16,440
And then income tomorrow is
a function f of nutrition.

269
00:15:19,110 --> 00:15:21,010
That means that income
tomorrow is f

270
00:15:21,010 --> 00:15:22,970
of g of income today.

271
00:15:22,970 --> 00:15:24,770
So this is what makes
this S shape.

272
00:15:28,830 --> 00:15:32,150
So what we can do today is to
look separately at these two

273
00:15:32,150 --> 00:15:32,990
relationships.

274
00:15:32,990 --> 00:15:35,980
What's the strength of the
relationship between income

275
00:15:35,980 --> 00:15:38,140
tomorrow and nutrition today?

276
00:15:38,140 --> 00:15:41,290
And what's the relationship
between nutrition today and

277
00:15:41,290 --> 00:15:42,610
income today?

278
00:15:42,610 --> 00:15:44,940
And here, when I mean today and
tomorrow, I really mean

279
00:15:44,940 --> 00:15:45,900
today and tomorrow.

280
00:15:45,900 --> 00:15:48,950
This is a short run phenomenon
that we are talking about.

281
00:15:48,950 --> 00:15:51,080
Maybe next week, but
not a matter of

282
00:15:51,080 --> 00:15:52,340
generations or years.

283
00:15:55,020 --> 00:15:59,180
So suppose that there is indeed
that this particular

284
00:15:59,180 --> 00:16:03,030
relationship, income tomorrow
and nutrition, is indeed S

285
00:16:03,030 --> 00:16:09,030
shape, and suppose that you were
a very poor person, so

286
00:16:09,030 --> 00:16:14,020
you are in a low part of the S,
and suppose that you happen

287
00:16:14,020 --> 00:16:17,570
onto a bit of money, what would
you do with this money?

288
00:16:21,030 --> 00:16:26,065
If this relationship between
income and nutrition was S

289
00:16:26,065 --> 00:16:30,200
shape and you were a very poor
person, but you find a pile of

290
00:16:30,200 --> 00:16:32,720
money on the ground, what would
you do with the money?

291
00:16:37,390 --> 00:16:38,791
AUDIENCE: Well, if that
holds true, then you

292
00:16:38,791 --> 00:16:40,420
would want to eat more.

293
00:16:40,420 --> 00:16:41,396
PROFESSOR: If that holds
true, then I know you

294
00:16:41,396 --> 00:16:42,360
would want to eat more.

295
00:16:42,360 --> 00:16:45,490
So that means that if there is
indeed an S shape between

296
00:16:45,490 --> 00:16:49,070
income tomorrow and nutrition,
then we should see a very

297
00:16:49,070 --> 00:16:51,560
strong relationship between
nutrition and income for the

298
00:16:51,560 --> 00:16:56,940
very poor, because it is like
for an excellent investment.

299
00:16:56,940 --> 00:17:00,370
If you find yourself here, there
is no better investment

300
00:17:00,370 --> 00:17:03,140
you can do than eating
some more.

301
00:17:03,140 --> 00:17:07,030
So a first thing you can do is
we can see whether poor people

302
00:17:07,030 --> 00:17:10,530
are really trying to
put all of the

303
00:17:10,530 --> 00:17:12,752
possible money into food.

304
00:17:12,752 --> 00:17:15,640
Now the question is the possible
money, so that means

305
00:17:15,640 --> 00:17:18,089
that we would find the share of
food in the budget should

306
00:17:18,089 --> 00:17:20,640
be very high for the poor.

307
00:17:20,640 --> 00:17:23,530
And the second thing it would
mean is that it would increase

308
00:17:23,530 --> 00:17:26,410
quite fast with income.

309
00:17:26,410 --> 00:17:30,010
And possibly, it would again
have a form of S shape for the

310
00:17:30,010 --> 00:17:30,740
following reason.

311
00:17:30,740 --> 00:17:34,560
Suppose that you have some
unavoidable expense to solve.

312
00:17:34,560 --> 00:17:38,070
For example, you need a house
and you need some clothes.

313
00:17:38,070 --> 00:17:41,180
So unless you live in a very
hot country where you don't

314
00:17:41,180 --> 00:17:44,790
really need much clothes, you
need a house, you need a piece

315
00:17:44,790 --> 00:17:48,620
of land to put the house on,
and you need some clothes.

316
00:17:48,620 --> 00:17:53,270
So someone who was a budget of
20 rupees will spend, say,

317
00:17:53,270 --> 00:17:56,470
five rupees on clothing
and house.

318
00:17:56,470 --> 00:17:59,070
They can't do anything
more than that.

319
00:17:59,070 --> 00:18:01,990
And 15 rupees on food.

320
00:18:01,990 --> 00:18:04,620
So that's the poorest person.

321
00:18:04,620 --> 00:18:09,000
And then if there is really this
S shape here, this person

322
00:18:09,000 --> 00:18:10,595
would be somewhere here.

323
00:18:10,595 --> 00:18:13,430
So they would remain
quite poor.

324
00:18:13,430 --> 00:18:18,170
And now another person,
comparable in other aspect,

325
00:18:18,170 --> 00:18:20,830
but has a total budget of 30
rupees, let's say because they

326
00:18:20,830 --> 00:18:23,400
have some non labor income or
because they have a bit more

327
00:18:23,400 --> 00:18:29,290
weight, than they would still
spend unavoidable expenses on

328
00:18:29,290 --> 00:18:33,270
clothing and houses, but they
would not do any more.

329
00:18:33,270 --> 00:18:35,980
They will still do
just the minimum.

330
00:18:35,980 --> 00:18:39,710
And they would spend all
the rest on food.

331
00:18:39,710 --> 00:18:44,660
That means that by how much did
I increase the income of

332
00:18:44,660 --> 00:18:45,910
this person?

333
00:18:48,660 --> 00:18:49,434
Sorry?

334
00:18:49,434 --> 00:18:50,210
AUDIENCE: By 10.

335
00:18:50,210 --> 00:18:53,565
PROFESSOR: Yeah, 10 out of
20, and [INAUDIBLE].

336
00:18:53,565 --> 00:18:53,850
AUDIENCE: 50%

337
00:18:53,850 --> 00:18:59,900
PROFESSOR: 50%, and this is
how much of [INAUDIBLE]?

338
00:18:59,900 --> 00:19:01,870
AUDIENCE: [INAUDIBLE].

339
00:19:01,870 --> 00:19:03,120
PROFESSOR: It's 25 out of 15.

340
00:19:05,650 --> 00:19:07,595
An increase from 15 to 25.

341
00:19:07,595 --> 00:19:09,750
It's 10 on the basis of 15.

342
00:19:09,750 --> 00:19:11,300
AUDIENCE: [INAUDIBLE].

343
00:19:11,300 --> 00:19:11,710
PROFESSOR: I trust you.

344
00:19:11,710 --> 00:19:13,600
You are the MA student.

345
00:19:13,600 --> 00:19:17,840
So whatever it is, that's
going to be on video.

346
00:19:17,840 --> 00:19:19,070
66?

347
00:19:19,070 --> 00:19:20,590
Let's go with 66.

348
00:19:20,590 --> 00:19:25,632
That means that when I increase
your income by 50%,

349
00:19:25,632 --> 00:19:28,155
your expenditure on food
increases by 66%.

350
00:19:31,790 --> 00:19:34,080
So if I divide by one
of the other, what

351
00:19:34,080 --> 00:19:37,140
concept is it called?

352
00:19:37,140 --> 00:19:38,760
An elasticity.

353
00:19:38,760 --> 00:19:44,640
So this means the elasticity
of food expenditure with

354
00:19:44,640 --> 00:19:48,390
respect to overall expenditure
is more than one for the

355
00:19:48,390 --> 00:19:49,740
extremely poor.

356
00:19:49,740 --> 00:19:52,975
Because you start by
taking care of

357
00:19:52,975 --> 00:19:54,580
your essentially needs.

358
00:19:54,580 --> 00:19:57,170
And after that you're putting
all of the money into food

359
00:19:57,170 --> 00:20:01,010
because you think this
is highly valuable.

360
00:20:01,010 --> 00:20:03,610
So this is one thing.

361
00:20:03,610 --> 00:20:07,160
And the second thing is now you
go from someone who gets

362
00:20:07,160 --> 00:20:11,490
30 rupees to someone
who gets 45 rupees.

363
00:20:11,490 --> 00:20:12,450
So I've rigged this so
that it's nicely

364
00:20:12,450 --> 00:20:14,700
another increase of 50%.

365
00:20:14,700 --> 00:20:17,245
And now this person who
makes 45 rupees--

366
00:20:19,970 --> 00:20:23,050
they're already kind of over
here somewhere, so the

367
00:20:23,050 --> 00:20:25,500
marginal value of one
more rupees into

368
00:20:25,500 --> 00:20:26,950
food is not that high.

369
00:20:26,950 --> 00:20:30,050
So they are still going to spend
a bit more on food, but

370
00:20:30,050 --> 00:20:31,900
only five rupees more.

371
00:20:31,900 --> 00:20:33,120
Going to spend a bit more
to have a nicer

372
00:20:33,120 --> 00:20:34,920
clothing and some houses.

373
00:20:34,920 --> 00:20:39,590
And now they can bring in
entertainment, because now

374
00:20:39,590 --> 00:20:41,620
they are basically just
taken care of.

375
00:20:41,620 --> 00:20:45,160
The marginal value of extra
is not that high.

376
00:20:45,160 --> 00:20:47,970
So they can get into
doing other things.

377
00:20:47,970 --> 00:20:52,660
So now the elasticity is
going to be 0.25 to 30.

378
00:20:52,660 --> 00:20:54,456
That's out of 25.

379
00:20:54,456 --> 00:20:55,884
Sorry?

380
00:20:55,884 --> 00:20:56,840
AUDIENCE: 20%

381
00:20:56,840 --> 00:20:58,600
PROFESSOR: 20%, is that?

382
00:20:58,600 --> 00:21:00,230
Yes, 20%.

383
00:21:00,230 --> 00:21:03,480
20% out of an increase in 50%.

384
00:21:03,480 --> 00:21:06,260
Now the elasticity is
much less than 1.

385
00:21:06,260 --> 00:21:09,340
So what we would see is a group
of people, the poorest

386
00:21:09,340 --> 00:21:11,810
people, where we have very
high elasticity.

387
00:21:11,810 --> 00:21:14,350
And then for anybody who
is somewhat richer, the

388
00:21:14,350 --> 00:21:17,520
elasticity of food consumption
with overall budget would be

389
00:21:17,520 --> 00:21:21,185
less than 1, which is what
people refer to as the Engel

390
00:21:21,185 --> 00:21:26,020
curve, which is the share of
food of the budget increases

391
00:21:26,020 --> 00:21:28,050
less than proportionately.

392
00:21:28,050 --> 00:21:32,750
So the Engel curve refers to
this phenomenon, which is the

393
00:21:32,750 --> 00:21:34,910
share of food increases less
than proportionately as you

394
00:21:34,910 --> 00:21:38,452
become richer, but it's worth
pointing out that in an S

395
00:21:38,452 --> 00:21:42,140
shaped world, we would probably
have and reverse

396
00:21:42,140 --> 00:21:46,030
Engel curve phenomenon, where
the share of food of the

397
00:21:46,030 --> 00:21:49,610
budget first increases
and then decreases.

398
00:21:49,610 --> 00:21:53,560
So the question is, do we see
this, that the poor spend as

399
00:21:53,560 --> 00:21:55,920
much money as they
can on food?

400
00:21:55,920 --> 00:21:58,950
And the second question is, do
we see this, which is do we

401
00:21:58,950 --> 00:22:03,400
see anybody who's elasticity
of food consumption with

402
00:22:03,400 --> 00:22:06,760
respect to budget
is more than 1?

403
00:22:06,760 --> 00:22:09,205
So that's kind of where
I want to go next.

404
00:22:13,390 --> 00:22:16,460
So first, let's look at the
food share in the budget

405
00:22:16,460 --> 00:22:17,870
around the world.

406
00:22:17,870 --> 00:22:20,950
And this comes from
a data set that--

407
00:22:23,970 --> 00:22:27,792
the World Bank collect data set
in many countries called

408
00:22:27,792 --> 00:22:30,480
the Living Standard Measurement
Surveys.

409
00:22:30,480 --> 00:22:34,290
And they very nicely put
them on the website--

410
00:22:34,290 --> 00:22:36,730
not all of their surveys,
because in some case, they

411
00:22:36,730 --> 00:22:39,590
have agreement with governments
that doesn't allow

412
00:22:39,590 --> 00:22:40,250
them to do that.

413
00:22:40,250 --> 00:22:42,270
But a lot of their surveys
are on the web.

414
00:22:42,270 --> 00:22:44,320
You can actually download
them and play with them.

415
00:22:44,320 --> 00:22:45,880
You're welcome to do that.

416
00:22:45,880 --> 00:22:48,310
And we did that.

417
00:22:48,310 --> 00:22:52,860
So we took the overall
expenditure to compute

418
00:22:52,860 --> 00:22:59,520
people's budget transferred
into PPP dollars.

419
00:22:59,520 --> 00:23:02,670
So this is people who live
under a dollar a day, at

420
00:23:02,670 --> 00:23:07,150
pressures in power poverty,
so in US prices.

421
00:23:07,150 --> 00:23:10,350
And look at the share
of their budget.

422
00:23:10,350 --> 00:23:14,000
So this is what we find for a
bunch of people living in the

423
00:23:14,000 --> 00:23:15,240
rural areas.

424
00:23:15,240 --> 00:23:19,760
And this is food, alcohol,
tobacco, education and health.

425
00:23:19,760 --> 00:23:25,040
So what are your remarks when
you see these numbers?

426
00:23:29,495 --> 00:23:31,475
AUDIENCE: I have a question
about the education

427
00:23:31,475 --> 00:23:33,455
percentages.

428
00:23:33,455 --> 00:23:35,682
Do those mean that we'd be
paying for tuition or

429
00:23:35,682 --> 00:23:39,400
educational [INAUDIBLE]?

430
00:23:39,400 --> 00:23:42,150
PROFESSOR: So this is only
education expenditure.

431
00:23:42,150 --> 00:23:44,740
So this is tuition if the child
is in a private school

432
00:23:44,740 --> 00:23:47,900
or if they get extra tuition,
which a lot of people in

433
00:23:47,900 --> 00:23:49,260
developing countries do.

434
00:23:49,260 --> 00:23:52,820
They get extra help at home.

435
00:23:52,820 --> 00:23:56,850
This could be school uniform,
school books, boarding school

436
00:23:56,850 --> 00:23:58,220
for kids who are in
boarding school.

437
00:23:58,220 --> 00:24:02,500
Any education related
expenditure would be in there.

438
00:24:02,500 --> 00:24:03,310
Yeah, Ben.

439
00:24:03,310 --> 00:24:06,130
AUDIENCE: I guess a couple
confusions, [INAUDIBLE].

440
00:24:20,680 --> 00:24:26,990
PROFESSOR: So in 2.1, Mexico
is spending more on alcohol

441
00:24:26,990 --> 00:24:30,030
and tobacco than on education.

442
00:24:30,030 --> 00:24:32,350
Spends very, very little
on health.

443
00:24:32,350 --> 00:24:34,200
That doesn't mean people
are totally unhealthy.

444
00:24:34,200 --> 00:24:36,810
But actually, Mexico has an
excellent health care system,

445
00:24:36,810 --> 00:24:39,940
but basically is free
for most people.

446
00:24:39,940 --> 00:24:43,020
And in all of the countries,
the share on alcohol and

447
00:24:43,020 --> 00:24:47,650
tobacco tends to be at least
comparable to what we see for

448
00:24:47,650 --> 00:24:48,622
education and health.

449
00:24:48,622 --> 00:24:49,830
Yeah.

450
00:24:49,830 --> 00:24:51,470
AUDIENCE: Why don't the numbers
add up to 100%?

451
00:24:51,470 --> 00:24:52,590
PROFESSOR: Because there are
other things you do with your

452
00:24:52,590 --> 00:24:54,682
money other than food, alcohol,
education or health.

453
00:24:58,984 --> 00:24:59,940
AUDIENCE: Got it.

454
00:24:59,940 --> 00:25:03,890
PROFESSOR: Going to the movies,
putting some cloth on

455
00:25:03,890 --> 00:25:07,330
your back, that kind of stuff.

456
00:25:07,330 --> 00:25:10,130
If it adds up to more than 100,
we're in trouble, which

457
00:25:10,130 --> 00:25:10,960
is quite possible.

458
00:25:10,960 --> 00:25:13,770
But I hope not, I hope not.

459
00:25:13,770 --> 00:25:16,210
I don't guarantee it, but
I hope that that kind of

460
00:25:16,210 --> 00:25:20,220
mistakes would not always
send scrutiny.

461
00:25:25,180 --> 00:25:28,505
Any other observation
on this table?

462
00:25:39,770 --> 00:25:41,180
Let me ask one question then.

463
00:25:41,180 --> 00:25:44,510
Do you think the share of the
budget on food is high or low?

464
00:25:51,150 --> 00:25:52,590
AUDIENCE: High.

465
00:25:52,590 --> 00:25:54,990
PROFESSOR: High, you think the
share of food is high?

466
00:25:54,990 --> 00:25:55,950
Yes.

467
00:25:55,950 --> 00:25:57,200
[INAUDIBLE].

468
00:26:02,534 --> 00:26:03,518
Ben?

469
00:26:03,518 --> 00:26:07,946
AUDIENCE: I mean, [INAUDIBLE],
I don't think you'd have much

470
00:26:07,946 --> 00:26:10,898
wiggle room to spend your money
on other [INAUDIBLE].

471
00:26:16,310 --> 00:26:16,802
PROFESSOR: It's about right.

472
00:26:16,802 --> 00:26:19,850
Yeah, so the question is whether
it's high or low.

473
00:26:19,850 --> 00:26:22,525
So one thing I should say is
that it's kind of viability.

474
00:26:22,525 --> 00:26:28,290
It goes from pretty low in
India, 56%, to pretty high in

475
00:26:28,290 --> 00:26:31,230
Timor, 77%.

476
00:26:31,230 --> 00:26:34,170
Remember, this is all people who
are equally poor in term

477
00:26:34,170 --> 00:26:38,340
of their ability to consume
things, because they're all

478
00:26:38,340 --> 00:26:40,570
below a dollar a day at PPP.

479
00:26:40,570 --> 00:26:42,650
They make very different
choices.

480
00:26:42,650 --> 00:26:44,370
They are quite viable.

481
00:26:44,370 --> 00:26:46,422
Whether it's high or low,
I think it's in

482
00:26:46,422 --> 00:26:47,790
the eye of the beholder.

483
00:26:47,790 --> 00:26:49,470
On the one hand, it's certainly
a high part of the

484
00:26:49,470 --> 00:26:51,890
budget, compared to what
people spend, for

485
00:26:51,890 --> 00:26:53,370
example, in the US.

486
00:26:53,370 --> 00:26:56,040
On the other hand, if you
compare it with, for example,

487
00:26:56,040 --> 00:26:59,280
what they spent on tobacco, even
on education, given that

488
00:26:59,280 --> 00:27:07,780
a lot of these countries have
a free education system, the

489
00:27:07,780 --> 00:27:12,230
education expenditure they are
making are extras, I'm sure

490
00:27:12,230 --> 00:27:13,685
surely value extras.

491
00:27:13,685 --> 00:27:18,710
But that means that there seems
to be actually some

492
00:27:18,710 --> 00:27:23,060
wiggle room, that you could do
something about your food

493
00:27:23,060 --> 00:27:27,320
budget and increase it without
sacrificing anything else

494
00:27:27,320 --> 00:27:29,230
that's vital for the house.

495
00:27:29,230 --> 00:27:31,154
Yes.

496
00:27:31,154 --> 00:27:31,554
AUDIENCE: I just
have a question

497
00:27:31,554 --> 00:27:32,597
about what you presented.

498
00:27:32,597 --> 00:27:34,761
The people who spend
more on food, is

499
00:27:34,761 --> 00:27:35,483
their nutrition better?

500
00:27:35,483 --> 00:27:36,733
Or is it [INAUDIBLE]?

501
00:27:39,830 --> 00:27:40,770
PROFESSOR: So that's an
excellent question.

502
00:27:40,770 --> 00:27:43,660
We're going to look into that,
which is when you spend more

503
00:27:43,660 --> 00:27:47,540
money on food, it could
be on more nutritious

504
00:27:47,540 --> 00:27:49,420
food or more calories.

505
00:27:49,420 --> 00:27:53,050
It could be on not so much
more nutritious food.

506
00:27:53,050 --> 00:27:55,100
It could be on better
tasting food.

507
00:27:55,100 --> 00:28:00,060
And the short answer is that
the two are happening.

508
00:28:00,060 --> 00:28:02,600
I don't know whether it's true
at the country level.

509
00:28:02,600 --> 00:28:04,825
For example, India is a country
that spends very

510
00:28:04,825 --> 00:28:07,200
little on food and which has
probably the worst nutritional

511
00:28:07,200 --> 00:28:11,290
stages for this group of people
within the world.

512
00:28:11,290 --> 00:28:13,880
But at the individual level,
we're going to see that very

513
00:28:13,880 --> 00:28:17,610
soon when people increase how
much money they spend on food,

514
00:28:17,610 --> 00:28:20,610
they both get more food and
they get better food, more

515
00:28:20,610 --> 00:28:24,050
expensive food for the calories
and the nutrition

516
00:28:24,050 --> 00:28:24,590
they are getting.

517
00:28:24,590 --> 00:28:27,360
So both things happen
together.

518
00:28:27,360 --> 00:28:29,810
AUDIENCE: What is the
requirement for the

519
00:28:29,810 --> 00:28:32,260
[INAUDIBLE]

520
00:28:32,260 --> 00:28:33,510
children and [INAUDIBLE]?

521
00:28:36,190 --> 00:28:38,320
PROFESSOR: No, this
is everyone.

522
00:28:38,320 --> 00:28:39,860
This is everyone who lives
on less than a

523
00:28:39,860 --> 00:28:41,680
dollar a day per capita.

524
00:28:41,680 --> 00:28:43,720
So if there are five of
them, they are entire

525
00:28:43,720 --> 00:28:45,300
budget divided by 5.

526
00:28:45,300 --> 00:28:47,790
And if no one has any children,
then they won't

527
00:28:47,790 --> 00:28:50,100
spend anything on education.

528
00:28:50,100 --> 00:28:51,786
AUDIENCE: They migh have spent
quite a bit more on education.

529
00:28:54,300 --> 00:28:56,770
PROFESSOR: This means that per
child, they spend a fair

530
00:28:56,770 --> 00:28:58,020
amount on education.

531
00:29:02,870 --> 00:29:04,349
AUDIENCE: [INAUDIBLE]

532
00:29:04,349 --> 00:29:08,293
is more expensive in South
Africa or Timor, so

533
00:29:08,293 --> 00:29:11,004
[INAUDIBLE] basically be buying
the same quantity of

534
00:29:11,004 --> 00:29:12,260
food to be spending more.

535
00:29:12,260 --> 00:29:15,930
PROFESSOR: Right, so that's
an excellent point.

536
00:29:15,930 --> 00:29:19,310
The point is in answer to the
unstated question, which is

537
00:29:19,310 --> 00:29:23,160
what explains this variation
across countries, our first

538
00:29:23,160 --> 00:29:25,160
possible explanation
is the relative

539
00:29:25,160 --> 00:29:27,790
price of food is different.

540
00:29:27,790 --> 00:29:32,750
So food could be relatively more
expensive in Timor Leste,

541
00:29:32,750 --> 00:29:36,010
which is why people are spending
more money to get the

542
00:29:36,010 --> 00:29:37,250
same thing.

543
00:29:37,250 --> 00:29:41,150
What is interesting is that the
opposite seems to be true,

544
00:29:41,150 --> 00:29:48,405
which is because India is a
very large economy that is

545
00:29:48,405 --> 00:29:52,640
able to produce very many things
in India, the relative

546
00:29:52,640 --> 00:29:58,280
price of things like toothbrush,
even DVDs,

547
00:29:58,280 --> 00:29:59,350
cellphones--

548
00:29:59,350 --> 00:30:01,740
that kind of things
relative to food--

549
00:30:01,740 --> 00:30:03,790
is lower in India.

550
00:30:03,790 --> 00:30:08,645
So one of the reasons why people
seem to be spending, or

551
00:30:08,645 --> 00:30:09,670
one possible reason--

552
00:30:09,670 --> 00:30:11,650
I'm not saying this
is a tirant.

553
00:30:11,650 --> 00:30:14,160
But this is a conjecture, let's
say-- is one of the

554
00:30:14,160 --> 00:30:18,040
reasons why people in India
spend much less on food and

555
00:30:18,040 --> 00:30:21,410
more on other things compared to
people in Papua New Guinea,

556
00:30:21,410 --> 00:30:23,790
is that there is nothing
to get in Papua New

557
00:30:23,790 --> 00:30:25,930
Guinea except food.

558
00:30:25,930 --> 00:30:28,720
So if you are poor, like
what can you buy?

559
00:30:28,720 --> 00:30:32,150
Well, in India, you can buy
shampoo of this kind, and

560
00:30:32,150 --> 00:30:34,170
everything is produced locally,
hence the relative

561
00:30:34,170 --> 00:30:36,330
prices are lower.

562
00:30:36,330 --> 00:30:40,780
So that's a possible explanation
for this pattern.

563
00:30:40,780 --> 00:30:41,280
Yeah.

564
00:30:41,280 --> 00:30:43,030
AUDIENCE: In terms of the
different prices across

565
00:30:43,030 --> 00:30:46,280
countries for food, I thought
that the one dollar a day

566
00:30:46,280 --> 00:30:48,780
standard was in terms of
purchasing power, so

567
00:30:48,780 --> 00:30:50,100
[INAUDIBLE].

568
00:30:50,100 --> 00:30:51,270
PROFESSOR: For your
entire budget.

569
00:30:51,270 --> 00:30:55,740
So the one dollar a day standard
takes a basket of

570
00:30:55,740 --> 00:30:56,560
consumption good.

571
00:30:56,560 --> 00:30:59,175
Of course, food is an important
part o it, but there

572
00:30:59,175 --> 00:31:01,520
is also other things that
people consume.

573
00:31:01,520 --> 00:31:07,390
So one dollar a day takes
the basket of goods.

574
00:31:07,390 --> 00:31:10,730
In fact, the way it's computed
here, it's 16

575
00:31:10,730 --> 00:31:12,240
rupees a day, actually--

576
00:31:12,240 --> 00:31:16,895
takes the basket of good that is
consumed by the poor rather

577
00:31:16,895 --> 00:31:21,915
than your basket of good or my
basket of good, and price it

578
00:31:21,915 --> 00:31:24,210
in the different places
and adjust with that.

579
00:31:24,210 --> 00:31:25,940
So good plays an
important part.

580
00:31:25,940 --> 00:31:28,130
But other things play as well.

581
00:31:28,130 --> 00:31:30,890
And then within a single dollar
a day, it could be

582
00:31:30,890 --> 00:31:34,750
that, say in India, for example,
food is relatively

583
00:31:34,750 --> 00:31:37,370
expensive relative to other
things just because the other

584
00:31:37,370 --> 00:31:40,270
things are so cheap
and available.

585
00:31:40,270 --> 00:31:41,964
Yes, Eve.

586
00:31:41,964 --> 00:31:45,310
AUDIENCE: Could it be that it's
hotter in India than the

587
00:31:45,310 --> 00:31:47,700
other places, so in other places
people need to eat more

588
00:31:47,700 --> 00:31:50,120
food to have more fat to
preserve heat, whereas in

589
00:31:50,120 --> 00:31:54,008
India, they don't need to eat as
much food because it's hot

590
00:31:54,008 --> 00:31:54,320
all the time?

591
00:31:54,320 --> 00:31:56,006
PROFESSOR: So it could be.

592
00:31:56,006 --> 00:31:57,150
It's a very interesting point,
and we are going

593
00:31:57,150 --> 00:31:57,500
to make this point.

594
00:31:57,500 --> 00:31:59,830
We are going to see this
point coming up in

595
00:31:59,830 --> 00:32:01,770
another guide very soon.

596
00:32:01,770 --> 00:32:06,940
The point is that we don't
know what's the calorie

597
00:32:06,940 --> 00:32:09,270
requirement for a human being,
partly because it depends on

598
00:32:09,270 --> 00:32:11,600
the climate and it depends
on what you are doing.

599
00:32:11,600 --> 00:32:14,100
And it depends on how much
calories you are losing to

600
00:32:14,100 --> 00:32:17,100
illnesses and other
things like that.

601
00:32:17,100 --> 00:32:21,730
One piece of evidence that
suggests it's not the entire

602
00:32:21,730 --> 00:32:27,270
story is that if it were the
case, if I looked at the size

603
00:32:27,270 --> 00:32:30,820
of the Indian people compared
to the size of anyone else,

604
00:32:30,820 --> 00:32:32,070
what should I see?

605
00:32:34,404 --> 00:32:36,734
Sorry?

606
00:32:36,734 --> 00:32:37,530
AUDIENCE: [INAUDIBLE].

607
00:32:37,530 --> 00:32:39,420
PROFESSOR: Well, in your
hypothesis where the

608
00:32:39,420 --> 00:32:42,330
difference is due to the fact
that they need less calories

609
00:32:42,330 --> 00:32:47,900
because it's warm, if everything
was explained here

610
00:32:47,900 --> 00:32:50,520
by the fact that Indian people
don't need that much calorie

611
00:32:50,520 --> 00:32:51,840
compare to--

612
00:32:51,840 --> 00:32:53,840
see, all these countries
are warm.

613
00:32:53,840 --> 00:32:57,590
But compared to South Africa,
South Africa is a bit more

614
00:32:57,590 --> 00:33:01,260
temperate, so poor people in
South Africa need to eat a lot

615
00:33:01,260 --> 00:33:06,130
because it's cold when it's
the winter there.

616
00:33:06,130 --> 00:33:10,970
Then if all the differences in
calorie consumption were to be

617
00:33:10,970 --> 00:33:13,760
explained by these needs, we
would find people whose

618
00:33:13,760 --> 00:33:16,890
nutrition status would
be comparable.

619
00:33:16,890 --> 00:33:19,060
So their height would be the
same and their weight

620
00:33:19,060 --> 00:33:20,680
would be the same.

621
00:33:20,680 --> 00:33:24,480
And in fact, Indian people are
very, very short and they are

622
00:33:24,480 --> 00:33:26,200
very, very skinny.

623
00:33:26,200 --> 00:33:30,560
Now you might say, yes,
but that's genetic.

624
00:33:30,560 --> 00:33:33,720
It's just, like, Indian
people are short.

625
00:33:33,720 --> 00:33:40,160
But that's actually not true,
because the children, when

626
00:33:40,160 --> 00:33:45,780
Indian migrants come to the US,
they start eating US food,

627
00:33:45,780 --> 00:33:48,570
their children are
still smaller.

628
00:33:48,570 --> 00:33:50,640
But the children of
their children--

629
00:33:50,640 --> 00:33:53,910
some of you might be that--

630
00:33:53,910 --> 00:33:57,700
are exactly as tall
as anybody else.

631
00:33:57,700 --> 00:34:01,580
So it suggests that the genetic
potential of Indian

632
00:34:01,580 --> 00:34:05,390
people in term of height and
body size is no different than

633
00:34:05,390 --> 00:34:06,990
that of anybody else.

634
00:34:06,990 --> 00:34:12,690
But it's their nutritional
status that is different.

635
00:34:12,690 --> 00:34:14,380
And that affects them directly,
and that affects

636
00:34:14,380 --> 00:34:18,830
their children just because
of when you're in utero in

637
00:34:18,830 --> 00:34:19,830
someone who doesn't eat enough,

638
00:34:19,830 --> 00:34:22,300
you'll also be smaller.

639
00:34:22,300 --> 00:34:23,870
For the longest time,
people said

640
00:34:23,870 --> 00:34:26,690
Japanese people were short.

641
00:34:26,690 --> 00:34:28,969
But it turns out that the height
in Japan are converging

642
00:34:28,969 --> 00:34:32,260
to the height of everybody
else in the world.

643
00:34:32,260 --> 00:34:35,889
So this is more of a nutrition
thing than all this cereal and

644
00:34:35,889 --> 00:34:39,518
maize that we are consuming,
than a

645
00:34:39,518 --> 00:34:42,889
genetic potential probably.

646
00:34:42,889 --> 00:34:46,360
So going back to sort of the
two punch lines here--

647
00:34:46,360 --> 00:34:51,149
one is that this is moving a
lot, which suggests that there

648
00:34:51,149 --> 00:34:54,755
is some margin of choices, at
least in India, for example.

649
00:34:54,755 --> 00:34:57,860
Second is we have this alcohol
and tobacco that we could, in

650
00:34:57,860 --> 00:34:59,480
principle, get rid of.

651
00:34:59,480 --> 00:35:02,400
And then all of that would
be extra calories.

652
00:35:02,400 --> 00:35:05,280
So that suggests that this is
high, this is important.

653
00:35:05,280 --> 00:35:09,300
But there seems to be some
amount of wiggle room take

654
00:35:09,300 --> 00:35:10,110
Ben's word.

655
00:35:10,110 --> 00:35:13,340
There is some amount of
wiggle room here.

656
00:35:13,340 --> 00:35:17,390
And to look at other form of
wiggle room, so another way to

657
00:35:17,390 --> 00:35:23,000
look at it is to look at this
question, which is what is the

658
00:35:23,000 --> 00:35:29,220
elasticity of calorie
consumption with respect to

659
00:35:29,220 --> 00:35:31,730
your income?

660
00:35:31,730 --> 00:35:36,140
So this log per capita outlay
is some fancy way of saying

661
00:35:36,140 --> 00:35:38,570
log per capita expenditure,
which is a good measure of

662
00:35:38,570 --> 00:35:40,270
your wealth.

663
00:35:40,270 --> 00:35:41,800
And what you can see
is that this is the

664
00:35:41,800 --> 00:35:44,130
log per capita calorie.

665
00:35:44,130 --> 00:35:47,980
This is looking at Maharashtra
in 1993.

666
00:35:47,980 --> 00:35:51,380
India has grown a lot since
1993, but Maharashtra in 1993

667
00:35:51,380 --> 00:35:54,300
was a pretty poor place.

668
00:35:54,300 --> 00:35:57,650
And what you find is that as
people become richer, they do

669
00:35:57,650 --> 00:35:58,880
consume more.

670
00:35:58,880 --> 00:36:02,100
The slope of this line
is about 0.3.

671
00:36:02,100 --> 00:36:04,400
And the slope of this line when
I run a regression of log

672
00:36:04,400 --> 00:36:08,430
per capita calorie on log per
capita outlay, what is the

673
00:36:08,430 --> 00:36:11,150
slope giving me?

674
00:36:11,150 --> 00:36:12,330
The elasticity.

675
00:36:12,330 --> 00:36:14,410
So whenever I go log log
regression, I get the

676
00:36:14,410 --> 00:36:15,270
elasticity.

677
00:36:15,270 --> 00:36:17,640
Interestingly, this is
not a regression.

678
00:36:17,640 --> 00:36:20,540
I mean, this is a regression,
but not a linear regression.

679
00:36:20,540 --> 00:36:24,050
This is a non parametric
regression, which means that

680
00:36:24,050 --> 00:36:27,640
if the shape had been what I
told you it could be, which is

681
00:36:27,640 --> 00:36:32,370
very high elasticity early on,
and then a lower one, so

682
00:36:32,370 --> 00:36:36,060
something we would expect if we
were in the S shape world

683
00:36:36,060 --> 00:36:38,790
of the elasticity being above
one for the poor and then

684
00:36:38,790 --> 00:36:42,105
less, the way they have
estimated this regression

685
00:36:42,105 --> 00:36:44,500
allows for this to
be the case.

686
00:36:44,500 --> 00:36:46,010
But that's not what they find.

687
00:36:46,010 --> 00:36:50,910
They find the elasticity of
1.5 pretty much constant

688
00:36:50,910 --> 00:36:52,920
across the range in the data.

689
00:36:52,920 --> 00:36:55,650
Now no one here is very rich, so
it's quite possible that it

690
00:36:55,650 --> 00:36:57,390
starts going down here.

691
00:36:57,390 --> 00:37:00,700
But the point is that even for
the very poorest, that

692
00:37:00,700 --> 00:37:05,090
elasticity is not above one, so
even the very poorest have

693
00:37:05,090 --> 00:37:08,950
an Engel curve phenomenon,
which is as they become

694
00:37:08,950 --> 00:37:11,470
richer, they don't start eating
as much as possible,

695
00:37:11,470 --> 00:37:13,760
eating the extra calories up.

696
00:37:13,760 --> 00:37:17,570
They're eating, in terms of
calories, if I increase your

697
00:37:17,570 --> 00:37:19,450
income by 10%, you increase
your calorie

698
00:37:19,450 --> 00:37:21,820
consumption by 30%.

699
00:37:21,820 --> 00:37:25,450
So these two first things
suggest that maybe this is

700
00:37:25,450 --> 00:37:30,290
somewhat unlikely that there
would be this very strong S

701
00:37:30,290 --> 00:37:33,200
shape, because otherwise people
would be behaving in a

702
00:37:33,200 --> 00:37:34,450
very bizarre way.

703
00:37:47,220 --> 00:37:49,990
So we've seen that.

704
00:37:49,990 --> 00:37:53,260
So I think we've covered this.

705
00:37:53,260 --> 00:37:58,470
So the calories increased with
overall consumption, but not

706
00:37:58,470 --> 00:37:59,610
one for one.

707
00:37:59,610 --> 00:38:01,850
When total expenditure
increased by 10%, the

708
00:38:01,850 --> 00:38:05,250
consumption of calorie
increased by 3.5%.

709
00:38:05,250 --> 00:38:06,840
So we have an Engel curve.

710
00:38:06,840 --> 00:38:09,800
That is true for everyone.

711
00:38:09,800 --> 00:38:14,550
So why is the slope of the Engel
curve less than one?

712
00:38:14,550 --> 00:38:19,280
So what happens is what was
suggested earlier, which is

713
00:38:19,280 --> 00:38:24,330
when people get a bit more
money, they do increase the

714
00:38:24,330 --> 00:38:26,940
share of the budget going
to other things.

715
00:38:26,940 --> 00:38:29,960
So the elasticity of overall
food expenditure

716
00:38:29,960 --> 00:38:30,760
is less than one.

717
00:38:30,760 --> 00:38:32,260
It's about 0.7.

718
00:38:32,260 --> 00:38:36,300
So if I increase your budget by
10%, you increase your food

719
00:38:36,300 --> 00:38:38,170
consumption by 7%.

720
00:38:38,170 --> 00:38:40,240
And then it means you increase
something else more than

721
00:38:40,240 --> 00:38:41,350
proportionally.

722
00:38:41,350 --> 00:38:45,020
So maybe you start spending
money on the movies, which you

723
00:38:45,020 --> 00:38:46,920
were not doing before.

724
00:38:46,920 --> 00:38:48,320
So that's the first thing.

725
00:38:48,320 --> 00:38:54,520
So 7% is not 3, though.

726
00:38:54,520 --> 00:38:57,270
So what is the difference
between 7 and 3?

727
00:38:57,270 --> 00:39:01,690
When I increase your budget by
10%, you increase your food

728
00:39:01,690 --> 00:39:03,530
budget by 7%.

729
00:39:03,530 --> 00:39:06,550
But your calories only
increase by 3.5.

730
00:39:06,550 --> 00:39:08,846
So what happened in
the meantime?

731
00:39:08,846 --> 00:39:10,830
[INAUDIBLE].

732
00:39:10,830 --> 00:39:13,310
AUDIENCE: Maybe all your food
wasn't as high in calories.

733
00:39:13,310 --> 00:39:15,320
PROFESSOR: They bought more
expensive food anyway.

734
00:39:15,320 --> 00:39:18,980
Maybe because that food was
yummier, maybe because it was

735
00:39:18,980 --> 00:39:21,760
more nutritious, but certainly
more expensive food.

736
00:39:21,760 --> 00:39:24,650
So what happens is that when
you spend more on food, you

737
00:39:24,650 --> 00:39:29,310
start buying more expensive
calories and you do that in

738
00:39:29,310 --> 00:39:30,820
various ways.

739
00:39:30,820 --> 00:39:34,505
You start eating meat instead
of eating cereals, and you

740
00:39:34,505 --> 00:39:37,185
start eating more expensive
cereals instead of the course

741
00:39:37,185 --> 00:39:40,730
cereals you were
eating before.

742
00:39:40,730 --> 00:39:43,650
And even within the more
expensive cereals, rice for

743
00:39:43,650 --> 00:39:45,860
example, you buy more
expensive rice.

744
00:39:45,860 --> 00:39:47,900
So all of this margin happens.

745
00:39:47,900 --> 00:39:50,390
And we can see it here
in the table.

746
00:39:50,390 --> 00:39:54,450
We can see this is Maharashtra,
1983.

747
00:39:54,450 --> 00:39:58,420
These are the poorest
10% and the top 10%.

748
00:39:58,420 --> 00:40:02,720
We can see that the poorest 10%
spent 46% of their budget

749
00:40:02,720 --> 00:40:06,760
on cereals, and the
top 10%, 31%.

750
00:40:06,760 --> 00:40:12,290
And if we look at meat, meat
is 8.5% for the poorest and

751
00:40:12,290 --> 00:40:14,460
12% for the richest.

752
00:40:14,460 --> 00:40:17,130
Things like are constant,
however, in terms of fraction

753
00:40:17,130 --> 00:40:18,230
of the budget is sugar.

754
00:40:18,230 --> 00:40:24,160
And the sugar actually goes
down 7.425%, and oil.

755
00:40:24,160 --> 00:40:25,530
That remains about the same.

756
00:40:25,530 --> 00:40:29,250
The fraction of the budget spent
on oil is 9% for both.

757
00:40:29,250 --> 00:40:34,130
But you get cereal going down,
and you get meat going up.

758
00:40:34,130 --> 00:40:37,690
And the price per calorie of
cereal is much cheaper

759
00:40:37,690 --> 00:40:41,950
compared to the price
per calorie of meat.

760
00:40:41,950 --> 00:40:46,090
And now within cereal, people
who are poor spend 9% of their

761
00:40:46,090 --> 00:40:48,220
budget on the rice.

762
00:40:48,220 --> 00:40:50,700
And the rich are spending
almost 11% of

763
00:40:50,700 --> 00:40:52,500
their budget on rice.

764
00:40:52,500 --> 00:40:59,360
And then the price of rice is
also cheaper than the price of

765
00:40:59,360 --> 00:41:00,850
other things.

766
00:41:00,850 --> 00:41:03,030
Price is more expensive, sorry,
than other things like

767
00:41:03,030 --> 00:41:04,650
the course cereal.

768
00:41:04,650 --> 00:41:07,300
And even within rice, the
poor are buying cheaper

769
00:41:07,300 --> 00:41:08,840
rice than the rich.

770
00:41:08,840 --> 00:41:15,070
The poor are spending 18 paise
per calorie for the rice, and

771
00:41:15,070 --> 00:41:18,650
one rupee per calorie for
the richer people.

772
00:41:18,650 --> 00:41:22,800
So all of this margin happen,
which again suggests that

773
00:41:22,800 --> 00:41:25,930
there is some amount
of flexibility.

774
00:41:25,930 --> 00:41:29,255
Because otherwise, what you
would do is to, within the

775
00:41:29,255 --> 00:41:32,520
same budget, continue to eat
the same thing, but more of

776
00:41:32,520 --> 00:41:33,880
the same thing.

777
00:41:33,880 --> 00:41:38,560
So if you were at subsistence
level, the share of your

778
00:41:38,560 --> 00:41:41,440
calories that comes from
the staple food

779
00:41:41,440 --> 00:41:43,740
would remain constant.

780
00:41:43,740 --> 00:41:45,890
And it's only after you've
reached some level of

781
00:41:45,890 --> 00:41:48,250
subsistence that you would
say, now I can

782
00:41:48,250 --> 00:41:49,680
start eating more meat.

783
00:41:49,680 --> 00:41:52,180
It's more expensive,
but it's yummier.

784
00:41:52,180 --> 00:41:55,270
And so the fact that even for
these relatively poor people

785
00:41:55,270 --> 00:42:00,770
who see that the share of
calories that comes from rice

786
00:42:00,770 --> 00:42:07,270
declines is an indication that
they probably see themselves

787
00:42:07,270 --> 00:42:08,820
having some margin of choice.

788
00:42:29,450 --> 00:42:31,730
So even among the very poor
people, an increase in

789
00:42:31,730 --> 00:42:34,430
economic well being has
positive, but not a huge,

790
00:42:34,430 --> 00:42:36,500
impact on calories consumed.

791
00:42:36,500 --> 00:42:38,750
So you take the poorest person
here and you increase their

792
00:42:38,750 --> 00:42:41,220
budget by 10%, they will
increase their calories by

793
00:42:41,220 --> 00:42:45,550
3.5%, partly because there are
other things they like to do,

794
00:42:45,550 --> 00:42:48,043
partly because within
food, they also like

795
00:42:48,043 --> 00:42:50,710
to eat better food.

796
00:42:50,710 --> 00:42:55,330
So that brings us to this Jensen
and Miller idea, which

797
00:42:55,330 --> 00:42:57,630
is the idea of a Giffen good.

798
00:42:57,630 --> 00:42:58,880
So what's a Giffen good?

799
00:43:02,660 --> 00:43:06,180
AUDIENCE: It's a good that
when the price increases,

800
00:43:06,180 --> 00:43:08,670
there's an increase in demand.

801
00:43:08,670 --> 00:43:10,195
PROFESSOR: When the price
increase, there is

802
00:43:10,195 --> 00:43:12,175
an increase in demand.

803
00:43:12,175 --> 00:43:12,670
That's right.

804
00:43:12,670 --> 00:43:16,135
Why is that surprising?

805
00:43:16,135 --> 00:43:19,255
AUDIENCE: Because generally
the demand curves--

806
00:43:19,255 --> 00:43:20,614
PROFESSOR: Yeah, go ahead.

807
00:43:20,614 --> 00:43:24,408
AUDIENCE: Generally as the price
increases, there's a

808
00:43:24,408 --> 00:43:26,050
decrease in the demand
for the quantity.

809
00:43:26,050 --> 00:43:27,253
PROFESSOR: Generally, we
think of the demand

810
00:43:27,253 --> 00:43:28,320
curve as looking down.

811
00:43:28,320 --> 00:43:30,070
So if there is an increase
in the price, you

812
00:43:30,070 --> 00:43:32,320
decrease your demand.

813
00:43:32,320 --> 00:43:36,520
So why is it not a violation
of everything

814
00:43:36,520 --> 00:43:37,770
we know about economics?

815
00:43:42,153 --> 00:43:47,510
AUDIENCE: Because if the price
of some good increases, then

816
00:43:47,510 --> 00:43:49,945
you wouldn't be able to
substitute out [INAUDIBLE]

817
00:43:49,945 --> 00:43:50,919
pretty easily.

818
00:43:50,919 --> 00:43:52,950
So the example of rice and
meat-- if the price of rice

819
00:43:52,950 --> 00:43:56,649
increases, then in order to get
the calories you need, you

820
00:43:56,649 --> 00:43:59,740
might have to buy more rice
and just stop buying meat.

821
00:43:59,740 --> 00:44:05,220
PROFESSOR: Right, Mr. Giffen is
referred to by who for the

822
00:44:05,220 --> 00:44:07,275
first time?

823
00:44:07,275 --> 00:44:11,306
Are there some writings
by Mr. Giffen?

824
00:44:11,306 --> 00:44:13,590
AUDIENCE: Indiana Jones.

825
00:44:13,590 --> 00:44:14,600
PROFESSOR: Indiana Jones--

826
00:44:14,600 --> 00:44:16,062
but before that.

827
00:44:16,062 --> 00:44:18,980
So Mr. Giffen-- we have no
writing from him directly, but

828
00:44:18,980 --> 00:44:21,710
he was referred to
by Adam Smith.

829
00:44:21,710 --> 00:44:23,100
And Adam Smith gives
the example

830
00:44:23,100 --> 00:44:27,010
of potatoes in Ireland.

831
00:44:27,010 --> 00:44:30,210
The price of potatoes goes up,
but potatoes is such an

832
00:44:30,210 --> 00:44:32,830
important part of the budget
that when the price of

833
00:44:32,830 --> 00:44:35,750
potatoes goes up, it does an
income effect, so that is

834
00:44:35,750 --> 00:44:36,260
always true.

835
00:44:36,260 --> 00:44:39,860
When the price of a good goes
up, it has an income effect

836
00:44:39,860 --> 00:44:41,620
and it has a substitution
effect.

837
00:44:41,620 --> 00:44:44,070
What do we know about the
substitution effect?

838
00:44:47,950 --> 00:44:50,375
Yeah.

839
00:44:50,375 --> 00:44:53,770
AUDIENCE: Generally when the
price of one good goes up,

840
00:44:53,770 --> 00:44:56,680
[INAUDIBLE].

841
00:44:56,680 --> 00:45:01,360
PROFESSOR: Right, so when the
price of a good goes up, you

842
00:45:01,360 --> 00:45:02,580
substitute to another good.

843
00:45:02,580 --> 00:45:05,700
So the substitution effect
is always negative.

844
00:45:05,700 --> 00:45:10,820
But the income effect can be
either positive or negative.

845
00:45:10,820 --> 00:45:13,390
So the income effect--

846
00:45:13,390 --> 00:45:14,640
in what case is it positive?

847
00:45:22,490 --> 00:45:29,100
So for example, if you look at
iPod consumption, would that

848
00:45:29,100 --> 00:45:30,710
tend to have a positive
income effect or a

849
00:45:30,710 --> 00:45:31,960
negative income effect?

850
00:45:40,610 --> 00:45:42,818
So the goods that are more like
luxury goods, that are a

851
00:45:42,818 --> 00:45:44,770
bit expensive, will have
positive income effect,

852
00:45:44,770 --> 00:45:48,540
meaning as you become richer,
you will consume more of them.

853
00:45:48,540 --> 00:45:50,380
The goods that are cheaper and
that are not particularly

854
00:45:50,380 --> 00:45:52,990
desirable will have negative
income effect.

855
00:45:52,990 --> 00:45:56,850
For example, think about
your own budget.

856
00:45:56,850 --> 00:45:59,505
As you become richer, maybe
you are going to buy more

857
00:45:59,505 --> 00:46:00,480
orange juice.

858
00:46:00,480 --> 00:46:02,050
That is a positive
income effect.

859
00:46:02,050 --> 00:46:05,460
Maybe you are going to get
fewer macaroni and cheese

860
00:46:05,460 --> 00:46:06,640
pre-packed.

861
00:46:06,640 --> 00:46:09,180
That has a negative
income effect.

862
00:46:09,180 --> 00:46:12,260
So the income effect could be
positive or could be negative.

863
00:46:12,260 --> 00:46:14,050
It's positive if it's
a normal good.

864
00:46:14,050 --> 00:46:16,420
It's negative if it's
an inferior good.

865
00:46:16,420 --> 00:46:18,940
So now something like potato is

866
00:46:18,940 --> 00:46:20,400
presumably an inferior good.

867
00:46:20,400 --> 00:46:21,400
That's not something
people love.

868
00:46:21,400 --> 00:46:24,042
It's something that as they
become richer, they will try

869
00:46:24,042 --> 00:46:26,870
and substitute to
another thing.

870
00:46:26,870 --> 00:46:30,620
So the question is whether the
income effect of an inferior

871
00:46:30,620 --> 00:46:34,030
good like potato is so large--

872
00:46:34,030 --> 00:46:37,640
not only it's negative, but it
is so large that it out does

873
00:46:37,640 --> 00:46:41,190
the substitution effect.

874
00:46:41,190 --> 00:46:44,180
So if the income effect is so
large that it more than

875
00:46:44,180 --> 00:46:46,780
compensates for the substitution
effect, then you

876
00:46:46,780 --> 00:46:49,170
might be getting a
different good.

877
00:46:49,170 --> 00:46:53,180
So that is the story of the
potato famine, which is

878
00:46:53,180 --> 00:46:56,720
possibly apocryphal,
the story being the

879
00:46:56,720 --> 00:46:59,050
price of potato increases.

880
00:46:59,050 --> 00:47:02,245
But that makes people poorer,
so that actually increases

881
00:47:02,245 --> 00:47:04,900
their consumption of potatoes,
because they stop eating meat,

882
00:47:04,900 --> 00:47:06,680
and they eat only potatoes
because they have no money

883
00:47:06,680 --> 00:47:08,590
left to buy any meat.

884
00:47:08,590 --> 00:47:10,840
So this is a different good.

885
00:47:10,840 --> 00:47:14,840
So until this paper, I think
there was a strong suspicion

886
00:47:14,840 --> 00:47:17,120
among economists that
different goods--

887
00:47:17,120 --> 00:47:19,410
actually, they didn't exist,
but they were a nice

888
00:47:19,410 --> 00:47:22,850
theoretical possibility, but
that in practice, you don't

889
00:47:22,850 --> 00:47:25,830
see a good where the income
effect is so large that it

890
00:47:25,830 --> 00:47:29,990
outdoes the substitution effect,
so that if you become

891
00:47:29,990 --> 00:47:32,040
richer, you eat fewer
potatoes.

892
00:47:32,040 --> 00:47:34,170
But if the price of
potatoes declines,

893
00:47:34,170 --> 00:47:37,150
you eat more potatoes.

894
00:47:37,150 --> 00:47:41,790
So this is the story.

895
00:47:41,790 --> 00:47:45,590
So a staple food that
constitutes a large part of

896
00:47:45,590 --> 00:47:48,400
the budget, like potatoes for
Irish famine or the example

897
00:47:48,400 --> 00:47:49,650
they have in China are what?

898
00:47:53,834 --> 00:47:56,750
AUDIENCE: These were two
provinces in the North

899
00:47:56,750 --> 00:47:58,000
[INAUDIBLE].

900
00:48:04,050 --> 00:48:05,740
PROFESSOR: Wheat and rice.

901
00:48:05,740 --> 00:48:09,340
So these are foods which are a
fairly large part of the food

902
00:48:09,340 --> 00:48:12,720
budget and a fairly large part
of the overall budget.

903
00:48:12,720 --> 00:48:16,060
So this is a good confident
for a different good.

904
00:48:16,060 --> 00:48:19,620
Because for the income effect to
have any chance to be large

905
00:48:19,620 --> 00:48:22,340
enough, it has to be something
that takes a large part of

906
00:48:22,340 --> 00:48:23,660
your budget.

907
00:48:23,660 --> 00:48:26,980
So that's why they decided
on this thing.

908
00:48:26,980 --> 00:48:29,690
So the first thing they've done
is they looked at these

909
00:48:29,690 --> 00:48:32,260
two provinces and they observed
that, for example, in

910
00:48:32,260 --> 00:48:36,260
a rice consuming region, they
observed that in cities where

911
00:48:36,260 --> 00:48:40,450
the price of rice is higher,
people consume more rice.

912
00:48:40,450 --> 00:48:42,480
And first, they are very happy,
and they said oh, we

913
00:48:42,480 --> 00:48:44,020
have found our Giffen good.

914
00:48:44,020 --> 00:48:46,120
But then they get depressed and
they realize maybe it is

915
00:48:46,120 --> 00:48:47,320
not a Giffen good.

916
00:48:47,320 --> 00:48:50,420
So why do they conclude
that it doesn't give

917
00:48:50,420 --> 00:48:53,560
them a Giffen good?

918
00:48:53,560 --> 00:48:55,528
AUDIENCE: [INAUDIBLE]

919
00:48:55,528 --> 00:48:58,726
is it because the price is
higher that people consume

920
00:48:58,726 --> 00:49:01,333
more rice, which would make it
an incident? or is it that

921
00:49:01,333 --> 00:49:02,930
people consume more rice, so
the price becomes higher?

922
00:49:02,930 --> 00:49:03,880
PROFESSOR: Right,
we don't know.

923
00:49:03,880 --> 00:49:06,830
We are trying to trace
a demand curve.

924
00:49:06,830 --> 00:49:09,860
But if we only observe prices
and quantity, we might be

925
00:49:09,860 --> 00:49:11,900
tracing the supply curve.

926
00:49:11,900 --> 00:49:15,230
So we don't know whether we have
traced the demand curve

927
00:49:15,230 --> 00:49:16,470
or the supply curve.

928
00:49:16,470 --> 00:49:21,100
And this would be the normal
shape for a supply curve.

929
00:49:21,100 --> 00:49:25,070
So this is exactly the same type
of problems that we were

930
00:49:25,070 --> 00:49:28,890
facing when we were trying to
look at the effect of malaria

931
00:49:28,890 --> 00:49:34,080
prices on bednets, which is if
we just look at the variation

932
00:49:34,080 --> 00:49:37,710
in the world, there is the
effect that we are trying to

933
00:49:37,710 --> 00:49:40,330
identify, and there is a
possible of a reverse

934
00:49:40,330 --> 00:49:42,960
causality, in this case, very
clear, which is we also have a

935
00:49:42,960 --> 00:49:45,550
supply curve that we are
trying to trace.

936
00:49:45,550 --> 00:49:47,800
So that's why they decided
that's not working.

937
00:49:47,800 --> 00:49:49,080
So what did they decide to do?

938
00:49:54,558 --> 00:49:57,048
AUDIENCE: They subsidized
rice and wheat.

939
00:49:57,048 --> 00:49:58,930
[INAUDIBLE].

940
00:49:58,930 --> 00:50:00,870
PROFESSOR: Exactly, what they
decided to do is to run the

941
00:50:00,870 --> 00:50:04,490
maize experiment where they
subsidized the price of rice

942
00:50:04,490 --> 00:50:06,370
in the rice consuming region
and wheat in the wheat

943
00:50:06,370 --> 00:50:09,310
consuming region at
various levels.

944
00:50:09,310 --> 00:50:12,370
I think there are three
levels of subsidies.

945
00:50:12,370 --> 00:50:14,620
So they take a sample
of households.

946
00:50:14,620 --> 00:50:17,735
They distribute a voucher for
the reduced price of rice in

947
00:50:17,735 --> 00:50:22,840
Hunan and reduced price of wheat
in Gangsu to a random

948
00:50:22,840 --> 00:50:28,470
sub sample for more than a
month's supply every month.

949
00:50:28,470 --> 00:50:30,330
They made sure that
the household

950
00:50:30,330 --> 00:50:32,560
wouldn't extend them.

951
00:50:32,560 --> 00:50:37,620
Otherwise, what would be a
problem if households started

952
00:50:37,620 --> 00:50:38,870
trading them?

953
00:50:44,589 --> 00:50:45,575
AUDIENCE: [INAUDIBLE].

954
00:50:45,575 --> 00:50:48,950
PROFESSOR: Exactly, in
particular you try

955
00:50:48,950 --> 00:50:49,690
to reduce the price.

956
00:50:49,690 --> 00:50:53,020
But if you give voucher and
people start exchanging them,

957
00:50:53,020 --> 00:50:56,200
think of food stamps when people
sell their food stamps.

958
00:50:59,430 --> 00:51:01,710
When they sell their food
stamps, they are getting

959
00:51:01,710 --> 00:51:03,900
money, which is--

960
00:51:03,900 --> 00:51:04,980
I mean, it's not bad.

961
00:51:04,980 --> 00:51:09,420
But why do we think
it's an issue?

962
00:51:09,420 --> 00:51:11,600
And why would there
be a theoretical

963
00:51:11,600 --> 00:51:13,530
issue in their cases?

964
00:51:17,442 --> 00:51:20,870
AUDIENCE: Essentially, the price
of the rice would need

965
00:51:20,870 --> 00:51:22,510
to be changed.

966
00:51:22,510 --> 00:51:23,760
PROFESSOR: It wouldn't
be changing.

967
00:51:25,670 --> 00:51:29,660
So the people would get their
voucher, and then they would

968
00:51:29,660 --> 00:51:30,430
sell it to someone.

969
00:51:30,430 --> 00:51:32,150
So they would get
money instead.

970
00:51:32,150 --> 00:51:34,330
And then they would, with that
many, perhaps buy some rice

971
00:51:34,330 --> 00:51:36,920
and wheat and buy some
other things as well.

972
00:51:36,920 --> 00:51:41,320
So their experiment where they
tried to change the price of

973
00:51:41,320 --> 00:51:43,940
rice or wheat would end up just
changing their income

974
00:51:43,940 --> 00:51:45,710
without changing the price.

975
00:51:45,710 --> 00:51:47,790
Because the marginal price that
they are facing once they

976
00:51:47,790 --> 00:51:50,690
have sold their voucher is the
same, except they now have

977
00:51:50,690 --> 00:51:51,840
more money.

978
00:51:51,840 --> 00:51:54,800
So now all they would identify
is the income effect.

979
00:51:54,800 --> 00:51:57,420
And of course, the income
effect would be negative

980
00:51:57,420 --> 00:51:58,990
because that's an
inferior good.

981
00:51:58,990 --> 00:52:00,510
So they would be finding
a Giffen good.

982
00:52:00,510 --> 00:52:02,770
But that would not
be a real one.

983
00:52:02,770 --> 00:52:05,590
That would be a fake one due to
the fact that their price

984
00:52:05,590 --> 00:52:08,480
experiment would be transformed
into an income

985
00:52:08,480 --> 00:52:11,080
experiment.

986
00:52:11,080 --> 00:52:14,180
So it's very important for
them to keep the price

987
00:52:14,180 --> 00:52:15,490
experiment in tact.

988
00:52:15,490 --> 00:52:18,160
So they tried to do that and
they tried to argue in the

989
00:52:18,160 --> 00:52:20,535
paper and in the post that you
read in Freakonomics that

990
00:52:20,535 --> 00:52:23,250
they've done this properly.

991
00:52:23,250 --> 00:52:25,380
And after six months, they came
back, and then they asked

992
00:52:25,380 --> 00:52:28,100
detailed questions about the
consumption of rice, wheat and

993
00:52:28,100 --> 00:52:30,490
other things.

994
00:52:30,490 --> 00:52:32,040
So what do they find?

995
00:52:32,040 --> 00:52:35,010
So I'm going to show you the
regression table which gives

996
00:52:35,010 --> 00:52:37,520
us the results directly and
explain to you what's in the

997
00:52:37,520 --> 00:52:39,000
regression table.

998
00:52:39,000 --> 00:52:39,640
So it's a long table.

999
00:52:39,640 --> 00:52:42,450
But for now, focus on
the first column.

1000
00:52:42,450 --> 00:52:46,480
So what they regress is the
percent increase in rice

1001
00:52:46,480 --> 00:52:50,880
consumption over the
percent subsidy.

1002
00:52:50,880 --> 00:52:52,370
There are three groups
of subsidies.

1003
00:52:52,370 --> 00:52:55,055
I was looking everywhere in the
paper for you to have the

1004
00:52:55,055 --> 00:52:59,144
three prices and the three
reductions so that I could

1005
00:52:59,144 --> 00:53:01,170
plot them, but they
were not there.

1006
00:53:01,170 --> 00:53:04,490
So this is the overall result.

1007
00:53:04,490 --> 00:53:06,185
So basically, the way you
read this graph--

1008
00:53:06,185 --> 00:53:11,780
it's saying that your
consumption of rice reduces by

1009
00:53:11,780 --> 00:53:21,050
23.5% when the subsidy
increases by 100%.

1010
00:53:21,050 --> 00:53:23,920
It's directly a percentage
of a percentage.

1011
00:53:23,920 --> 00:53:31,770
So your consumption of rice
reduces in percentage about a

1012
00:53:31,770 --> 00:53:34,550
quarter of the reduction
in price.

1013
00:53:34,550 --> 00:53:36,160
So the important thing
here is, of

1014
00:53:36,160 --> 00:53:38,210
course, that it's negative.

1015
00:53:38,210 --> 00:53:40,410
And below the coefficient
here, you get

1016
00:53:40,410 --> 00:53:42,600
the standard error.

1017
00:53:42,600 --> 00:53:44,900
So the coefficient is 0.235.

1018
00:53:44,900 --> 00:53:47,840
The standard error 0.14.

1019
00:53:47,840 --> 00:53:50,500
If you divide by one the other,
you get the familiar T

1020
00:53:50,500 --> 00:53:51,590
statistics.

1021
00:53:51,590 --> 00:53:55,920
This one is above 1.7, so this
means this is significant at

1022
00:53:55,920 --> 00:53:58,860
10% level, which tells
you that this is not

1023
00:53:58,860 --> 00:54:00,620
entirely due to chance.

1024
00:54:00,620 --> 00:54:02,880
This negative is
not some fluke.

1025
00:54:02,880 --> 00:54:06,070
It is something which is
indeed significantly

1026
00:54:06,070 --> 00:54:07,980
different from 0.

1027
00:54:07,980 --> 00:54:10,770
So that's what they
find for Hunan.

1028
00:54:10,770 --> 00:54:16,110
And then they find the opposite
for seafood, where

1029
00:54:16,110 --> 00:54:19,670
the elasticity of seafood
consumption with respect to

1030
00:54:19,670 --> 00:54:23,590
the price of rice is
very positive.

1031
00:54:23,590 --> 00:54:25,980
So what happened in
their experiment--

1032
00:54:25,980 --> 00:54:29,040
this is your typical Giffen
good behavior--

1033
00:54:29,040 --> 00:54:32,130
is the price of rice increases,
but increases

1034
00:54:32,130 --> 00:54:34,420
because rice is such an
important part of your budget.

1035
00:54:34,420 --> 00:54:36,780
It amounts to increasing
your income.

1036
00:54:36,780 --> 00:54:38,990
And because of this increase in
your income, you feel that

1037
00:54:38,990 --> 00:54:42,600
you can now get more of your
calories from shrimps and

1038
00:54:42,600 --> 00:54:45,810
fewer from food.

1039
00:54:45,810 --> 00:54:47,060
So that's for Hunan.

1040
00:54:53,420 --> 00:54:56,240
So this is the explanation.

1041
00:54:56,240 --> 00:55:02,380
And for Gansu, we have a
positive elasticity.

1042
00:55:02,380 --> 00:55:04,470
So it means that wheat doesn't
appear to be a

1043
00:55:04,470 --> 00:55:05,810
Giffen good in Gansu.

1044
00:55:05,810 --> 00:55:07,650
It appears to be an
inferior good.

1045
00:55:07,650 --> 00:55:12,340
It increased less than one for
one, but in fact, it's not

1046
00:55:12,340 --> 00:55:14,240
significantly positive.

1047
00:55:14,240 --> 00:55:16,510
But it's certainly
not negative.

1048
00:55:16,510 --> 00:55:20,650
And they explain why they find
a different result in a

1049
00:55:20,650 --> 00:55:22,340
different place.

1050
00:55:22,340 --> 00:55:23,250
[INAUDIBLE].

1051
00:55:23,250 --> 00:55:25,297
AUDIENCE: What prevented then
from just [INAUDIBLE] rice

1052
00:55:25,297 --> 00:55:29,420
they got to give more money
by substituting goods?

1053
00:55:29,420 --> 00:55:32,646
PROFESSOR: Right, so they
tried to stop that.

1054
00:55:32,646 --> 00:55:38,940
But we don't know for sure
that they succeeded.

1055
00:55:38,940 --> 00:55:40,660
What they were very worried
about is the

1056
00:55:40,660 --> 00:55:42,990
resale of the voucher.

1057
00:55:42,990 --> 00:55:45,675
And their view then is once you
had resold the voucher,

1058
00:55:45,675 --> 00:55:48,400
then you wouldn't have
resold the rice.

1059
00:55:48,400 --> 00:55:51,070
And what they did after that
is they did a survey.

1060
00:55:51,070 --> 00:55:57,950
So the data here doesn't come
from the administrative data

1061
00:55:57,950 --> 00:55:59,760
of what was sold in the shop.

1062
00:55:59,760 --> 00:56:02,560
The survey comes from what
people consumed at

1063
00:56:02,560 --> 00:56:04,260
the end of the day.

1064
00:56:04,260 --> 00:56:06,670
So to the extent that people
didn't lie to them, this is

1065
00:56:06,670 --> 00:56:09,220
the actually consumption.

1066
00:56:09,220 --> 00:56:13,250
So it could still be the case
that they bought the rice.

1067
00:56:13,250 --> 00:56:14,200
They sold the rice.

1068
00:56:14,200 --> 00:56:16,160
They bought the rice with the
voucher because they couldn't

1069
00:56:16,160 --> 00:56:17,360
exchange the voucher.

1070
00:56:17,360 --> 00:56:20,920
But then, they went to the
trouble of selling the rice.

1071
00:56:20,920 --> 00:56:24,080
And that's why it's just an
income effect that we are

1072
00:56:24,080 --> 00:56:27,950
estimating, which is
why it's negative.

1073
00:56:27,950 --> 00:56:30,250
They tried to argue that it
didn't happen, but that's, of

1074
00:56:30,250 --> 00:56:32,300
course, a key concept.

1075
00:56:32,300 --> 00:56:36,220
So what do they say about wheat,
that why did the wheat

1076
00:56:36,220 --> 00:56:38,206
show them a different good for
the wheat, but they have one

1077
00:56:38,206 --> 00:56:39,820
for the rice?

1078
00:56:39,820 --> 00:56:42,170
AUDIENCE: Because people aren't
eating wheat itself.

1079
00:56:42,170 --> 00:56:45,940
They're eating wheat products,
like noodles.

1080
00:56:45,940 --> 00:56:47,552
PROFESSOR: Exactly, you are
saying that it's not their own

1081
00:56:47,552 --> 00:56:48,765
group, that people rice.

1082
00:56:48,765 --> 00:56:52,030
They don't buy big packets of
wheat, so that it was kind of

1083
00:56:52,030 --> 00:56:53,280
the wrong idea.

1084
00:57:00,300 --> 00:57:02,300
This, of course, has implication
for nutrition, and

1085
00:57:02,300 --> 00:57:05,980
in particular for a very
frequent policy that we find

1086
00:57:05,980 --> 00:57:09,620
in developing world, which is
food price's subsidy for

1087
00:57:09,620 --> 00:57:11,290
greater nutrition.

1088
00:57:11,290 --> 00:57:15,170
So for example, in Indonesia,
we have the ration program.

1089
00:57:15,170 --> 00:57:16,990
If you remember, in Pak Solhin's
stories, he got some

1090
00:57:16,990 --> 00:57:19,300
free rice from the
ration program.

1091
00:57:19,300 --> 00:57:25,020
In India, India just introduced
the Right to Food

1092
00:57:25,020 --> 00:57:26,900
Act and a subsidy scheme
for rice in

1093
00:57:26,900 --> 00:57:29,430
rice consuming regions.

1094
00:57:29,430 --> 00:57:33,090
So India has something called
a public distribution system

1095
00:57:33,090 --> 00:57:37,140
where they distribute food to
households at reduced prices,

1096
00:57:37,140 --> 00:57:39,000
to poor households at
reduced prices.

1097
00:57:39,000 --> 00:57:46,110
Egypt spent something like 3% of
its GDP on food subsidies.

1098
00:57:46,110 --> 00:57:51,330
So food subsidies is a very
important part of help to the

1099
00:57:51,330 --> 00:57:53,010
poor in developing countries.

1100
00:57:53,010 --> 00:57:55,350
It's also a very important
part of our--

1101
00:57:55,350 --> 00:57:56,740
our meaning the US--

1102
00:57:56,740 --> 00:58:01,420
aid to poor countries is in the
form of food aid, directly

1103
00:58:01,420 --> 00:58:04,830
food which we send to
poor countries.

1104
00:58:04,830 --> 00:58:07,080
Why are we spending a lot of our
aid in terms of food aid?

1105
00:58:11,336 --> 00:58:12,827
AUDIENCE: [INAUDIBLE]

1106
00:58:12,827 --> 00:58:14,815
lot of food [INAUDIBLE].

1107
00:58:14,815 --> 00:58:17,797
It's easier for us to just
take that [INAUDIBLE].

1108
00:58:17,797 --> 00:58:20,212
PROFESSOR: Yes, so part of the
reason why a lot of our aid is

1109
00:58:20,212 --> 00:58:21,440
in the form of food aid
is that it's also

1110
00:58:21,440 --> 00:58:24,010
aid for our own farmers.

1111
00:58:24,010 --> 00:58:26,130
And it's a way of kind of
buying the [INAUDIBLE]

1112
00:58:26,130 --> 00:58:28,110
and sending them out.

1113
00:58:28,110 --> 00:58:31,280
So when the weather has been
good in the US and the harvest

1114
00:58:31,280 --> 00:58:34,980
is very big, a lot more food
aid is being spent

1115
00:58:34,980 --> 00:58:36,510
all over the world.

1116
00:58:36,510 --> 00:58:40,830
But with that aside, this is a
policy that many countries

1117
00:58:40,830 --> 00:58:44,430
have to try to subsidize
the price of food.

1118
00:58:44,430 --> 00:58:49,840
But if we have something like
the Giffen good, what may

1119
00:58:49,840 --> 00:58:56,710
happen if you make the price
of the staple less high, if

1120
00:58:56,710 --> 00:58:58,370
you make the price of
the staple lower?

1121
00:58:58,370 --> 00:59:00,250
Yes.

1122
00:59:00,250 --> 00:59:02,791
AUDIENCE: Then they'll spend
their income on other sorts of

1123
00:59:02,791 --> 00:59:04,870
stuff, not on the [INAUDIBLE].

1124
00:59:04,870 --> 00:59:06,560
PROFESSOR: Yes, we might find
that something like this

1125
00:59:06,560 --> 00:59:11,990
happens, which is the price
of rice has now gone down.

1126
00:59:11,990 --> 00:59:13,930
Instead of eating more rice,
you ate less rice and more

1127
00:59:13,930 --> 00:59:17,540
shrimps and maybe also
more cellphones.

1128
00:59:17,540 --> 00:59:23,490
So if rice is indeed a Giffen
good, the increase in the

1129
00:59:23,490 --> 00:59:26,640
calories you are getting from a
decline in the price of rice

1130
00:59:26,640 --> 00:59:29,770
might actually not
be very high.

1131
00:59:29,770 --> 00:59:32,150
In fact, it might even
be negative.

1132
00:59:32,150 --> 00:59:35,810
Because if the income effect is
sufficiently large, it made

1133
00:59:35,810 --> 00:59:38,005
outdo, again, the
price effect.

1134
00:59:38,005 --> 00:59:40,860
And we might find that as we
make food cheaper, people eat

1135
00:59:40,860 --> 00:59:43,710
less instead of eating more.

1136
00:59:43,710 --> 00:59:46,920
And that's exactly what they
found in Hunan where rice was

1137
00:59:46,920 --> 00:59:48,480
a Giffen good.

1138
00:59:48,480 --> 00:59:57,000
They find that as you decrease
the price of rice, people eat

1139
00:59:57,000 --> 01:00:00,790
fewer calories, not more.

1140
01:00:00,790 --> 01:00:09,230
So this would be the very
standard poor price policy in

1141
01:00:09,230 --> 01:00:12,390
your average developing
countries, to try to subsidize

1142
01:00:12,390 --> 01:00:13,810
the staple.

1143
01:00:13,810 --> 01:00:20,240
And the justification of this
policy will typically be in

1144
01:00:20,240 --> 01:00:23,110
the form of we need to
increase the calorie

1145
01:00:23,110 --> 01:00:26,140
consumption because people are
trapped in poverty trap like

1146
01:00:26,140 --> 01:00:27,580
our friend, Pak Solhin.

1147
01:00:27,580 --> 01:00:30,370
But in fact, if you look at this
for this urban household

1148
01:00:30,370 --> 01:00:34,310
in China, you find the opposite,
which is subsidizing

1149
01:00:34,310 --> 01:00:36,570
the price of rice actually
leads to

1150
01:00:36,570 --> 01:00:38,640
fewer calories consumed.

1151
01:00:38,640 --> 01:00:42,572
And it's not because people gain
in terms of other micro

1152
01:00:42,572 --> 01:00:43,926
nutrients, though we
don't have all

1153
01:00:43,926 --> 01:00:45,420
the other micro nutrient.

1154
01:00:45,420 --> 01:00:50,850
But we get fewer portions
being consumed as well.

1155
01:00:50,850 --> 01:00:52,850
So this is what they find
in Hunan, but they

1156
01:00:52,850 --> 01:00:54,550
don't have it in Gansu.

1157
01:00:54,550 --> 01:00:56,830
So it's not to say that
it happens necessarily

1158
01:00:56,830 --> 01:01:00,950
everywhere, but it is something
that might happen.

1159
01:01:00,950 --> 01:01:04,070
So it is not a total given that
a reduction in the price

1160
01:01:04,070 --> 01:01:08,310
of food will lead to an
increase in nutrition.

1161
01:01:08,310 --> 01:01:10,615
On the bright side, it also
means that it's not

1162
01:01:10,615 --> 01:01:13,025
necessarily a given that the
current increase in the food

1163
01:01:13,025 --> 01:01:15,720
prices that we are observing
will lead to people eating

1164
01:01:15,720 --> 01:01:17,220
fewer calories.

1165
01:01:17,220 --> 01:01:21,440
Because it might have this
progress effect of making them

1166
01:01:21,440 --> 01:01:26,286
poorer and therefore leading
them to eat more of calories.

1167
01:01:26,286 --> 01:01:30,678
AUDIENCE: Yeah, I think
one way [INAUDIBLE]

1168
01:01:30,678 --> 01:01:32,142
food [INAUDIBLE].

1169
01:01:32,142 --> 01:01:35,558
Because, for example, if you eat
shrimps, shrimps may not

1170
01:01:35,558 --> 01:01:36,534
be very calorie rich.

1171
01:01:36,534 --> 01:01:39,462
In India, people eat
a lot of lentils.

1172
01:01:39,462 --> 01:01:43,632
And the next thing that they eat
to rice is durum, which is

1173
01:01:43,632 --> 01:01:46,648
actually full of protein.

1174
01:01:46,648 --> 01:01:50,995
So eating less rice, and if they
spend more on protein,

1175
01:01:50,995 --> 01:01:52,927
[INAUDIBLE].

1176
01:01:52,927 --> 01:01:55,580
PROFESSOR: Right, so this is,
of course, completely

1177
01:01:55,580 --> 01:01:59,290
dependent on what you
substitute with.

1178
01:01:59,290 --> 01:02:01,530
If you substitute rice with
lentils, actually it might be

1179
01:02:01,530 --> 01:02:04,220
more nutrition, and more iron,
more nutrition, et cetera.

1180
01:02:04,220 --> 01:02:07,490
So we might find an increase in
nutrition due to subsidy in

1181
01:02:07,490 --> 01:02:08,700
the price the rice.

1182
01:02:08,700 --> 01:02:11,100
So the only point here was
not to say that it

1183
01:02:11,100 --> 01:02:11,930
has to be the case.

1184
01:02:11,930 --> 01:02:14,780
It was to say that it doesn't
have to be the case that

1185
01:02:14,780 --> 01:02:17,470
subsidizing the price the rice
will lead to more rice and

1186
01:02:17,470 --> 01:02:19,440
more calories being consumed.

1187
01:02:19,440 --> 01:02:22,960
Now let's look at India,
precisely.

1188
01:02:22,960 --> 01:02:27,910
So before that, there is
something that should surprise

1189
01:02:27,910 --> 01:02:33,360
you in when you put together
this Jenson and Miller result

1190
01:02:33,360 --> 01:02:35,390
and what we had before
in India.

1191
01:02:35,390 --> 01:02:42,430
We found that a household that
are 10% richer eat about 3.5

1192
01:02:42,430 --> 01:02:44,180
more calories.

1193
01:02:44,180 --> 01:02:45,830
But the Jenson and
Miller result--

1194
01:02:45,830 --> 01:02:47,940
what does it suggest about
the income effect?

1195
01:02:51,440 --> 01:02:54,780
We are finding that when the
price of rice decreases, you

1196
01:02:54,780 --> 01:02:56,460
eat less, not more.

1197
01:02:56,460 --> 01:02:58,573
What the income effect
has to be?

1198
01:02:58,573 --> 01:02:59,300
AUDIENCE: It's negative.

1199
01:02:59,300 --> 01:03:01,935
PROFESSOR: It has
to be negative.

1200
01:03:01,935 --> 01:03:04,280
So on the one hand, I showed you
positive income effect--

1201
01:03:04,280 --> 01:03:06,290
maybe not very large, but
certainly positive for India.

1202
01:03:06,290 --> 01:03:10,510
On the other hand, I'm showing
you price effect in China

1203
01:03:10,510 --> 01:03:15,230
which suggest that the income
effect has to be negative, and

1204
01:03:15,230 --> 01:03:16,610
in fact, very negative.

1205
01:03:16,610 --> 01:03:18,120
So how can this be?

1206
01:03:18,120 --> 01:03:22,080
How can we have the two
things together?

1207
01:03:22,080 --> 01:03:25,170
So the first thing is that in
India, we were comparing

1208
01:03:25,170 --> 01:03:26,170
different households.

1209
01:03:26,170 --> 01:03:28,100
We were not comparing the
same household to

1210
01:03:28,100 --> 01:03:32,340
which I give more money.

1211
01:03:32,340 --> 01:03:34,950
And different households
are different.

1212
01:03:34,950 --> 01:03:36,750
Maybe they're households
that are a bit richer.

1213
01:03:36,750 --> 01:03:39,280
They are also more educated and
they understand the value

1214
01:03:39,280 --> 01:03:42,110
of nutrition, and that's
why they eat more.

1215
01:03:42,110 --> 01:03:45,193
So the idea in experiment would
be to give people a

1216
01:03:45,193 --> 01:03:48,270
little bit more money, really
literally do that and see

1217
01:03:48,270 --> 01:03:50,560
whether they spend this
money on food or not.

1218
01:03:50,560 --> 01:03:53,060
And that would allow us to
estimate the income effect.

1219
01:03:53,060 --> 01:03:55,250
To my knowledge, no
one has done that.

1220
01:03:55,250 --> 01:03:58,630
It's a little bit difficult
to parachute [INAUDIBLE]

1221
01:03:58,630 --> 01:04:00,600
drops of money on people--

1222
01:04:00,600 --> 01:04:04,550
not impossible, but it's not
been done, I don't think.

1223
01:04:04,550 --> 01:04:08,050
So what we have when we looked
at the India curve, we find

1224
01:04:08,050 --> 01:04:10,930
that people who have more
money eat more.

1225
01:04:10,930 --> 01:04:13,580
But it may be because they have
different tastes or it

1226
01:04:13,580 --> 01:04:16,490
might be because they eat more,
and therefore they're

1227
01:04:16,490 --> 01:04:18,480
more productive, therefore they
have more money, so the

1228
01:04:18,480 --> 01:04:20,780
opposite relationship.

1229
01:04:20,780 --> 01:04:24,700
So that may be an
underestimate.

1230
01:04:24,700 --> 01:04:27,400
That positive estimate, which
was already not that high of

1231
01:04:27,400 --> 01:04:30,690
the income effect, might have
been an over estimate.

1232
01:04:30,690 --> 01:04:32,830
And one thing that's
suggested--

1233
01:04:32,830 --> 01:04:35,330
and it goes back to
[? Swati's ?] point earlier--

1234
01:04:35,330 --> 01:04:40,000
is when we plug the Engel curve
over time in India, we

1235
01:04:40,000 --> 01:04:45,250
see two interesting things.

1236
01:04:45,250 --> 01:04:48,700
Number one, all of the Engel
curve for the rural areas are

1237
01:04:48,700 --> 01:04:51,230
above the Engel curve
for the urban areas.

1238
01:04:51,230 --> 01:04:52,850
Why do you think that
would be the case?

1239
01:04:55,410 --> 01:04:58,534
AUDIENCE: The work in the rural
area is much more labor

1240
01:04:58,534 --> 01:05:00,363
intensive, so you need
to eat more to

1241
01:05:00,363 --> 01:05:01,630
have physical strength.

1242
01:05:01,630 --> 01:05:03,430
PROFESSOR: Exactly, the work
in rural area is more

1243
01:05:03,430 --> 01:05:06,060
intensive, and so they
need more calories.

1244
01:05:06,060 --> 01:05:08,480
So this is interesting that
you are making this point,

1245
01:05:08,480 --> 01:05:10,560
because this is the point you
were making earlier about

1246
01:05:10,560 --> 01:05:14,640
maybe the needs of calorie in
South Africa are bigger

1247
01:05:14,640 --> 01:05:16,410
because it's colder.

1248
01:05:16,410 --> 01:05:17,920
So that's the first
things we notice.

1249
01:05:17,920 --> 01:05:19,530
So this we can explain.

1250
01:05:19,530 --> 01:05:21,740
And what's the other interesting
trend in this

1251
01:05:21,740 --> 01:05:29,460
picture is that over time, the
Engel curves are falling down.

1252
01:05:29,460 --> 01:05:34,360
People are eating less, and
less, and less for the same

1253
01:05:34,360 --> 01:05:36,520
level of income.

1254
01:05:36,520 --> 01:05:38,860
So what happened in India over
time is that, of course,

1255
01:05:38,860 --> 01:05:40,880
people got richer.

1256
01:05:40,880 --> 01:05:43,480
So if the Engel curves had been
stable, they would have

1257
01:05:43,480 --> 01:05:45,430
eaten more.

1258
01:05:45,430 --> 01:05:47,750
But because the Engel curves are
also falling down at the

1259
01:05:47,750 --> 01:05:53,100
same time, what happened over
time is that people are moving

1260
01:05:53,100 --> 01:05:55,990
first across to another Engel
curve and then up along an

1261
01:05:55,990 --> 01:05:57,100
Engel curve.

1262
01:05:57,100 --> 01:06:01,590
So take someone who would
be at a log income of 5.

1263
01:06:01,590 --> 01:06:05,810
15 years later, they have a log
income maybe of 5.5, but

1264
01:06:05,810 --> 01:06:07,060
the Engel curve have
also moved.

1265
01:06:14,290 --> 01:06:18,630
Take someone who is at 5, and
then 15 years later, they

1266
01:06:18,630 --> 01:06:20,410
would be, let's say, at 6.

1267
01:06:20,410 --> 01:06:24,520
But now we need to find the 6 on
the much lower Engel curve.

1268
01:06:24,520 --> 01:06:27,790
So instead of eating more, as
they would have if the Engel

1269
01:06:27,790 --> 01:06:30,490
curve had become stable, we find
that people in India eat

1270
01:06:30,490 --> 01:06:32,680
less and less.

1271
01:06:32,680 --> 01:06:36,140
So over time, the poor in India
are eating less and less

1272
01:06:36,140 --> 01:06:40,010
instead of eating more and more,
which does suggest some

1273
01:06:40,010 --> 01:06:42,690
negative income elasticity for
the country as a whole.

1274
01:06:42,690 --> 01:06:45,410
The country is becoming richer
and those people are becoming

1275
01:06:45,410 --> 01:06:48,570
richer, but they are eating
less and less.

1276
01:06:48,570 --> 01:06:52,890
So this now starts to make sense
with the two results,

1277
01:06:52,890 --> 01:06:55,570
where maybe the income
elasticity of food

1278
01:06:55,570 --> 01:06:56,530
consumption--

1279
01:06:56,530 --> 01:07:00,361
not only it's not above one,
which is what we would have in

1280
01:07:00,361 --> 01:07:02,900
a poverty trap kind of a
world, but it might be

1281
01:07:02,900 --> 01:07:06,252
negative, which is as people
become richer, they-- a funny

1282
01:07:06,252 --> 01:07:07,525
thing-- eat fewer calories.

1283
01:07:15,600 --> 01:07:18,330
So if we look at nutrition in
India, we have a pretty

1284
01:07:18,330 --> 01:07:22,900
interesting phenomenon, which is
this is the share of people

1285
01:07:22,900 --> 01:07:27,840
who are eating below 2,100
in urban areas and

1286
01:07:27,840 --> 01:07:30,900
2,400 in rural areas.

1287
01:07:30,900 --> 01:07:33,600
This is the number of calories
they consume per head.

1288
01:07:33,600 --> 01:07:36,760
Why are these interesting
thresholds?

1289
01:07:36,760 --> 01:07:38,010
Yeah.

1290
01:07:40,380 --> 01:07:42,845
You had a question or you
were just moving?

1291
01:07:42,845 --> 01:07:43,338
AUDIENCE: Yeah, I was going
to ask [INAUDIBLE].

1292
01:07:43,338 --> 01:07:43,831
PROFESSOR: Go ahead, go ahead.

1293
01:07:43,831 --> 01:07:47,257
AUDIENCE: I was wondering
if that couldn't just be

1294
01:07:47,257 --> 01:07:50,682
explained because of inflation
and not necessarily for a

1295
01:07:50,682 --> 01:07:52,630
negative effect.

1296
01:07:52,630 --> 01:07:54,841
PROFESSOR: Very good,
I could be that the

1297
01:07:54,841 --> 01:07:57,090
price of food has changed.

1298
01:07:57,090 --> 01:08:01,090
People have become richer, but
food is now more expensive.

1299
01:08:01,090 --> 01:08:03,370
Remember, it has to be relative
prices, because

1300
01:08:03,370 --> 01:08:04,640
people have become richer
in real term.

1301
01:08:08,320 --> 01:08:11,140
Even corrected for inflation,
India is richer now.

1302
01:08:11,140 --> 01:08:13,770
And there are also fewer
poor people.

1303
01:08:13,770 --> 01:08:16,460
But it could be that food prices
increase relative to

1304
01:08:16,460 --> 01:08:17,810
other things.

1305
01:08:17,810 --> 01:08:21,540
And that's actually not
the case until 2005.

1306
01:08:21,540 --> 01:08:24,630
And then it became very much
the case after 2005.

1307
01:08:24,630 --> 01:08:28,870
But these results are until
2005, where the relative price

1308
01:08:28,870 --> 01:08:30,899
of food were relatively
stable.

1309
01:08:30,899 --> 01:08:33,790
That's a very good point.

1310
01:08:33,790 --> 01:08:35,050
2,100, 2,400.

1311
01:08:35,050 --> 01:08:36,028
Yeah.

1312
01:08:36,028 --> 01:08:37,495
AUDIENCE: So I was just
wondering the calculation that

1313
01:08:37,495 --> 01:08:40,918
was done for people who are
doing sort of intensive labor,

1314
01:08:40,918 --> 01:08:43,689
how many calories they would
need as a bare minimum to be

1315
01:08:43,689 --> 01:08:46,050
able to succeed in that?

1316
01:08:46,050 --> 01:08:48,060
PROFESSOR: Again, we don't
really know how many calories

1317
01:08:48,060 --> 01:08:49,460
we need, but this is
what the Indian

1318
01:08:49,460 --> 01:08:51,750
government says you need.

1319
01:08:51,750 --> 01:08:55,000
And maybe they get it a bit
wrong, because this is the

1320
01:08:55,000 --> 01:08:57,290
fraction of people in rural
area who are getting

1321
01:08:57,290 --> 01:08:58,930
less than they need.

1322
01:08:58,930 --> 01:09:00,750
So it's very high.

1323
01:09:00,750 --> 01:09:04,790
Yet these people are
still all alive.

1324
01:09:04,790 --> 01:09:08,429
But what is striking is that
this is increasing both in

1325
01:09:08,429 --> 01:09:12,970
rural area and in urban area,
but even more in rural area.

1326
01:09:12,970 --> 01:09:15,939
So one first explanation was
yours, is maybe it's the

1327
01:09:15,939 --> 01:09:17,535
relative price of food.

1328
01:09:17,535 --> 01:09:22,160
That would be true after 2005,
but not until 2005.

1329
01:09:22,160 --> 01:09:25,029
What could be other
explanation?

1330
01:09:25,029 --> 01:09:27,202
AUDIENCE: Maybe a lot of poor
people have come from rural

1331
01:09:27,202 --> 01:09:30,825
areas, and very poor
[INAUDIBLE]

1332
01:09:30,825 --> 01:09:33,723
rural areas and then sort of
broke up into rural areas

1333
01:09:33,723 --> 01:09:36,665
[INAUDIBLE].

1334
01:09:36,665 --> 01:09:37,920
PROFESSOR: So that's a
very good suggestion.

1335
01:09:37,920 --> 01:09:42,160
Maybe that the people who are
in rural area now are the

1336
01:09:42,160 --> 01:09:45,260
very, very poor, so they are
relatively poorer, so we get

1337
01:09:45,260 --> 01:09:48,090
more of them who are
eating less.

1338
01:09:48,090 --> 01:09:49,790
And the urban area also getting
poorer, because the

1339
01:09:49,790 --> 01:09:51,790
people from the rural
area move to them.

1340
01:09:51,790 --> 01:09:55,940
That's a very good suggestion,
a composition effect.

1341
01:09:55,940 --> 01:09:58,230
That probably doesn't explain
it, because if you look at

1342
01:09:58,230 --> 01:10:02,420
that overall consumption per
capita of these people, are

1343
01:10:02,420 --> 01:10:04,990
the function of people who live
below a dollar a day,

1344
01:10:04,990 --> 01:10:08,190
that is going down here
and down here.

1345
01:10:08,190 --> 01:10:09,440
So that's probably not--

1346
01:10:14,220 --> 01:10:15,206
AUDIENCE: There has been
more technology.

1347
01:10:15,206 --> 01:10:19,150
They're going to spend other
money on other stuff.

1348
01:10:19,150 --> 01:10:21,710
PROFESSOR: Right, so this would
be another explanation,

1349
01:10:21,710 --> 01:10:24,040
which is the similar explanation
from what we are

1350
01:10:24,040 --> 01:10:26,050
seeing on the wall, which
is there are more

1351
01:10:26,050 --> 01:10:27,085
and more things available.

1352
01:10:27,085 --> 01:10:30,810
In particular, one thing that
has clearly happened is the

1353
01:10:30,810 --> 01:10:33,020
advent of cell phone.

1354
01:10:33,020 --> 01:10:35,530
And so now cell phones weren't
there, and now they are there.

1355
01:10:35,530 --> 01:10:39,640
In India, you can get a cell
phone and airtime everywhere.

1356
01:10:39,640 --> 01:10:41,880
And so that's one thing.

1357
01:10:41,880 --> 01:10:44,296
So more things become available,
very good.

1358
01:10:44,296 --> 01:10:45,108
Yeah.

1359
01:10:45,108 --> 01:10:47,130
AUDIENCE: I think this might
be what you meant, but

1360
01:10:47,130 --> 01:10:49,680
technology that might make the
work easier, so you require

1361
01:10:49,680 --> 01:10:52,420
fewer calories because the
work is not as difficult.

1362
01:10:52,420 --> 01:10:54,760
PROFESSOR: Right, this is not
what she meant just now, but

1363
01:10:54,760 --> 01:10:55,660
that's what she meant earlier.

1364
01:10:55,660 --> 01:10:58,070
So I was surprised she is not
making this point again.

1365
01:10:58,070 --> 01:11:01,280
But that's exactly a very good
point, which is maybe these

1366
01:11:01,280 --> 01:11:03,890
are what the Indian government
says, but who

1367
01:11:03,890 --> 01:11:06,360
knows what they know.

1368
01:11:06,360 --> 01:11:08,890
And maybe the calorie
requirements have changed.

1369
01:11:08,890 --> 01:11:11,195
One of the reasons would be that
you're less likely to do

1370
01:11:11,195 --> 01:11:14,220
back breaking work, or maybe
because there is more

1371
01:11:14,220 --> 01:11:16,880
irrigation, there is more
mechanisation of agriculture.

1372
01:11:16,880 --> 01:11:19,030
People are less likely
to be in agriculture,

1373
01:11:19,030 --> 01:11:21,030
even in rural areas.

1374
01:11:21,030 --> 01:11:23,360
What would be another reason
why the calorie requirement

1375
01:11:23,360 --> 01:11:24,610
would have gone down?

1376
01:11:28,870 --> 01:11:31,080
So one is clearly, you are
less likely to work.

1377
01:11:31,080 --> 01:11:34,760
What competes with calories
with you?

1378
01:11:37,284 --> 01:11:39,740
AUDIENCE: Are you talking
about worms and health?

1379
01:11:39,740 --> 01:11:43,670
PROFESSOR: Worms, and health and
diarrhea, and other nice

1380
01:11:43,670 --> 01:11:45,030
things like that.

1381
01:11:45,030 --> 01:11:48,800
Generally being sick consumes
a lot of calories.

1382
01:11:48,800 --> 01:11:52,820
And so one thing that has
happened in India is drinking

1383
01:11:52,820 --> 01:11:55,890
water has become more available
and cleaner, so

1384
01:11:55,890 --> 01:11:58,130
people are much less
likely to be sick.

1385
01:11:58,130 --> 01:12:01,680
Another thing that uses a lot of
calories is being pregnant,

1386
01:12:01,680 --> 01:12:06,090
and you have many fewer
children being born.

1387
01:12:06,090 --> 01:12:08,440
So that's also compete
less for calories.

1388
01:12:08,440 --> 01:12:12,730
So one possible reason for all
of these, for these changes,

1389
01:12:12,730 --> 01:12:16,400
is that the calorie requirements
have just changed

1390
01:12:16,400 --> 01:12:20,260
and people are staying at the
same level as before.

1391
01:12:20,260 --> 01:12:20,880
They spend less.

1392
01:12:20,880 --> 01:12:22,800
And they are used to a
particular level, so they just

1393
01:12:22,800 --> 01:12:25,900
stay there, and it costs them
less money than before.

1394
01:12:35,010 --> 01:12:37,390
So this leads us to a
possibility for why people are

1395
01:12:37,390 --> 01:12:38,870
not easy more generally.

1396
01:12:38,870 --> 01:12:40,870
Maybe they're not eating because
that's not such a

1397
01:12:40,870 --> 01:12:43,250
great investment.

1398
01:12:43,250 --> 01:12:47,370
And so when we went through
out little theory section

1399
01:12:47,370 --> 01:12:51,020
here, we said that if you happen
to be right here in the

1400
01:12:51,020 --> 01:12:54,660
capacity curve, it's very
valuable for you to eat.

1401
01:12:54,660 --> 01:12:58,240
But if, in the real world,
the effect of calories on

1402
01:12:58,240 --> 01:13:02,430
productivity is not that loud,
then you might as well do

1403
01:13:02,430 --> 01:13:04,690
something else with
your money.

1404
01:13:04,690 --> 01:13:10,070
And in fact, what we find when
we look at the effect is that

1405
01:13:10,070 --> 01:13:14,500
this is the effect of calories
consumed on your productivity

1406
01:13:14,500 --> 01:13:16,950
if you're a farmer
in Sierra Leone.

1407
01:13:16,950 --> 01:13:20,710
And it's hard to find a job that
requires less strength

1408
01:13:20,710 --> 01:13:22,565
than being a farmer
in Sierra Leone.

1409
01:13:22,565 --> 01:13:25,800
And what you find is that
while it is increasing,

1410
01:13:25,800 --> 01:13:28,300
certainly, people
who eat more--

1411
01:13:28,300 --> 01:13:31,830
this is your calorie
consumption, and this is how

1412
01:13:31,830 --> 01:13:33,250
productive you are--

1413
01:13:33,250 --> 01:13:36,130
people are more productive
when they eat more.

1414
01:13:36,130 --> 01:13:38,702
But what's the shape
of the curve?

1415
01:13:38,702 --> 01:13:40,310
AUDIENCE: [INAUDIBLE].

1416
01:13:40,310 --> 01:13:43,260
PROFESSOR: It's our inverted
L shape, and it's not

1417
01:13:43,260 --> 01:13:44,710
greater than one.

1418
01:13:44,710 --> 01:13:46,630
So now we finally can answer
the question that

1419
01:13:46,630 --> 01:13:48,880
you asked ages ago.

1420
01:13:48,880 --> 01:13:49,990
There is no real sign.

1421
01:13:49,990 --> 01:13:53,273
This is probably the most
favorable case, which is why I

1422
01:13:53,273 --> 01:13:54,960
put it on the board.

1423
01:13:54,960 --> 01:13:59,270
There is no real sign that this
phenomenon that you need

1424
01:13:59,270 --> 01:14:01,570
to eat enough calories,
otherwise you can't be

1425
01:14:01,570 --> 01:14:04,900
productive enough to do anything
is really there.

1426
01:14:04,900 --> 01:14:08,270
So in the very short run,
everything starts to fit,

1427
01:14:08,270 --> 01:14:11,640
which is people don't really
need the extra calories that

1428
01:14:11,640 --> 01:14:13,820
much, because the extra
calories makes them

1429
01:14:13,820 --> 01:14:16,260
productive, but not that
much more productive.

1430
01:14:16,260 --> 01:14:18,090
Hence, they are not
eating them.

1431
01:14:18,090 --> 01:14:20,787
And in fact, we see over time
that they are eating less and

1432
01:14:20,787 --> 01:14:22,240
less of the calories
because they need

1433
01:14:22,240 --> 01:14:23,510
less and less of them.

1434
01:14:23,510 --> 01:14:25,900
And they have a level of
strength that allows them to

1435
01:14:25,900 --> 01:14:28,560
do their day to day work, and
with the rest of their money,

1436
01:14:28,560 --> 01:14:32,450
they do other things, and that
makes now perfect sense.

1437
01:14:32,450 --> 01:14:35,030
So in terms of policies,
what does it mean?

1438
01:14:35,030 --> 01:14:37,260
Well in term of policies, it
means that policies that are

1439
01:14:37,260 --> 01:14:41,790
going to insist that the big
problem is starvation in terms

1440
01:14:41,790 --> 01:14:44,610
of not eating enough grain
are probably going to be

1441
01:14:44,610 --> 01:14:47,370
misleading, and are probably
going to lead to a

1442
01:14:47,370 --> 01:14:51,630
fair amount of waste.

1443
01:14:59,570 --> 01:15:01,930
So in summary, at the maximum
when your income today

1444
01:15:01,930 --> 01:15:06,150
increases by 10%, your calorie
consumption increase by 3.5%.

1445
01:15:06,150 --> 01:15:08,455
That's what we saw in India,
and that's almost surely a

1446
01:15:08,455 --> 01:15:10,130
wild over estimate.

1447
01:15:10,130 --> 01:15:13,400
But let's say that it's
a maximum possible.

1448
01:15:13,400 --> 01:15:14,650
And then your productivity--

1449
01:15:16,880 --> 01:15:21,250
you multiply that by another
4%, so when your income

1450
01:15:21,250 --> 01:15:26,850
increases by 10%, your income
increases by 1.4% tomorrow.

1451
01:15:26,850 --> 01:15:29,720
That would be the S shape,
except it's not S, because

1452
01:15:29,720 --> 01:15:34,320
there is no point where it would
cause the 45 degree line

1453
01:15:34,320 --> 01:15:38,630
from below, because the
elasticity is much, much less

1454
01:15:38,630 --> 01:15:41,050
than one instead of
being above one.

1455
01:15:41,050 --> 01:15:44,040
So we don't have a place where
the curve is crossing the 45

1456
01:15:44,040 --> 01:15:45,420
degree line from below.

1457
01:15:45,420 --> 01:15:49,235
The curve is just not steep
enough to create a poverty

1458
01:15:49,235 --> 01:15:52,440
trap from this phenomenon.

1459
01:15:52,440 --> 01:15:55,690
Just to be sure that you don't
go away thinking everything is

1460
01:15:55,690 --> 01:15:58,670
well, this may be very different
from other things

1461
01:15:58,670 --> 01:16:01,510
than calories, for
example iron.

1462
01:16:01,510 --> 01:16:04,490
And this may be very different
for children, because the

1463
01:16:04,490 --> 01:16:07,990
investment in a child, the
investment you're making at

1464
01:16:07,990 --> 01:16:10,590
one specific time is going to
help them for their entire

1465
01:16:10,590 --> 01:16:13,490
life instead of just
for tomorrow.

1466
01:16:13,490 --> 01:16:16,510
So what we are going to do on
Thursday is look at what I

1467
01:16:16,510 --> 01:16:19,100
call the hidden trap, which
is that there might be a

1468
01:16:19,100 --> 01:16:23,760
nutrition productivity poverty
trap, but it's not in the

1469
01:16:23,760 --> 01:16:25,870
usual sense where we
were looking for.

1470
01:16:25,870 --> 01:16:30,110
It's in these more subtle
things, nutrients,

1471
01:16:30,110 --> 01:16:32,260
micronutrients, children's
nutrition,

1472
01:16:32,260 --> 01:16:33,510
pregnant women's nutrition.