Monday, August 30, 2010

DJ the moocher and economic development

"The DJ has now replaced his bed with friends' couches" from a BBC article on people giving up their possessions and simplifying their life. Many of the comments where I saw this article first (Boston Gals Open Wallet) suggested this DJ was a moocher, I'm inclined to agree. Reading the article he seems to have a steady income but is doing extended couch surfing. Maybe he's making payments to the people renting the house.

But it got me thinking about mooching in developing countries. Maybe mooching isn't the right right word because people in extreme poverty turn to their family, neighbors and friends because few or no other outlets will lend them money or help them when pressed with financially difficulty.

The likelihood that people will ask you for money if you start doing better financially may change your incentive to work. I have heard several stories about the difficulty of advancing financially and maintaining ties to your community in extremely poor countries, since once you make it people close to you will start asking you for money.

My favorite example is how it relates to savings and microcredit. Many people use microcredit to purchase livestock. If they try to save up the money they might feel obligated to help their friends and family and spend the savings before they can save enough to buy a cow. However, once a cow is bought it is a lot harder to divide a cow (well without harming the cow) to help a friend with just a few dollars. By borrowing the person with money actually saves and builds wealth.

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