5. Is There a Nutrition-Based Poverty Trap?

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MIT OpenCourseWare at ocw.mit.edu. PROFESSOR: So today, we’re
going to be talking about today and on Thursday, we’re
going to be trying to answer this question. We’re going to give a slightly
different answer today than on Thursday. Just to give you a road map of
where we are going, today is more going to be about the
poverty trap in the sense that Pak Solhin described
it to us in– I think it was our first
lecture together. We started from Pak Solhin
description of a poverty trap, which was really based on the
immediate impact of the calories on your productivity
that very day. And then that’s what we’re going
to look at today, which is try to answer
[? Daiquiri’s ?] question which I’ve been putting
off until now, which is to say well, can we really
believe his story? And then on Thursday, we are
going to further our inquiry into nutrition based poverty
trap by looking at things a little bit more subtle than the
impact of calories on your productivity the very next day
by looking at things like micro nutrients and by looking
at things like feeding your children or feeding pregnant
mother so that the kids that they bear grow up as different
people, et cetera. So that’s kind of the road
map for our work today and on Thursday. At the end of last lecture,
we discussed the important observation by Amartya Sen
that maybe there are no famines in today’s democracies,
that the large big famines are gone or at least
that when we observe them, they are due to some
really extraordinary circumstances like a
war or a civil war. So there is a paper that I
didn’t ask you to read because it’s a little long. But the title is Is
Famine History? And it sort of concludes that
it might be outside of specific circumstances. I should say that it’s history
that might come back because we have no idea what global
warming is going to do to the productivity of agriculture,
and it may or may not be sufficiently bad that
it might come back. But in the short term, we may be
in a situation where people are not starving to death in
very large number like they did in West Mongol outside
of some big serious political crisis. However, malnutrition and
under nutrition is not. You can see the food and
agriculture organization that’s based in Rome is in
charge of trying to monitor people’s situation. They try to estimate how many
people are, they call, hungry. So they give periodically a
number of the number of hungry people in the world. And not long ago, they came
up with one billion. And that number, if you’ve seen,
has been all about the newspaper, one billion hungry
people in the world. To be completely honest, I am
not fully understood how they compute the number of hungry
people in the world, because I suppose you could ask them. But I don’t think this is
what they are doing. I think they are trying to
estimate the calorie requirement that people
might need to fit. And the question is do we really
know what’s a calorie requirement? And the answer to that is no. We don’t really exactly know
what’s a calorie requirement. So maybe this notion of what’s
a hungry person is a little bit more hazy than we’d
like it to be. But there is not really
a lot of people who look very skinny. So do you know what the
bodymass index? The bodymass index is your– sorry, go ahead. AUDIENCE: 730 times your
height divided by your weight squared. PROFESSOR: 730? I didn’t know that that’s 730. I think it’s your weight
divided by your height squared in meter. That’s maybe the 730
coming from. It’s your weight in kilograms
divided by your height in meter squared. So sometimes I’m trying to think
that this means that we’re trying to elongate the
person over a square meter and see how fat that rectangle
would be. So that’s the BMI. Do you know what the threshold
for the BMI is. AUDIENCE: 18.5. PROFESSOR: 18.5. So 18.5 is undernourished. And there is a large number
of people we know who are undernourished by
this standard. Also there is about 2 billion
people in the world who are anemic. That means they don’t
have enough hemoglobin in their blood. Now all of anemia is due to
poor nutrition, but it’s estimated that maybe half
of this is due to iron deficiency anemia. So it’s a deficiency
in one particular micronutrient which is iron. So that’s about one billion
people who are anemic due to some deficiency in iron
in their diet. Is there deficiency in
iron or difficulty in absorbing the iron? A lot of these anemic
people is in India. And sadly, Indians combine the
fact that many of them are vegetarian and their diet is
rich in rice which is rich in phytates, which is an inhibitant
for the absorption of iron, which is one reason
why the rate of anemia is particularly high in India, is
that on the one hand, they get less iron in their diet than
other people at comparable level of calorie intake
just because those come less from meat. Then on the other hand, they
are less good at absorbing them due to the rice. There was a large increase
in food prices in 2006. And then again, they collapsed
during the crisis. And they increased again
in 2010 to be almost at 2008 level. And there are two consequences
of an increase in food prices on those of the poor who are net
consumer of food, that is those who produce less
than they consume. Those are, for example,
the urban poor. And those are on the one hand,
a large proportion of the budget of the poor. A larger proportion of the
budget of the poor is spent on food, so an increase in the
price of food affect the poorest more than
proportionally, compared to any other source of inflation. So if the source of inflation is
sort of a general increase in priced or it’s driven by
the price of housing, then that affects everybody the
same or that might affect the rich more. But if the inflation is as
it is today, driven by an increase in the price of food,
then it affects more the people who are relying the
most, of course, on food. And that’s the first story. That’s one reason why
organizations like the World Bank, the UN, they FAO are
practically worried about an increase in food prices,
because that’s disproportionately affecting
the poor. And it’s also disproportionately
affecting the urban poor, which may be one
of the many reasons that have led to the unrest that
you observe today in the Middle East. The reason why I’m mentioning
that is that in 2008, at the height of the previous increase
in food prices, there were food riots in Egypt that
never had achieved the kind of intensity of what we saw in the
last few weeks, but were clearly and very directly
prompted by the price of food. And here, the whole rhetoric
of the revolt was framed around political reform, but it
is not impossible that part of the reason why so many
people, in particular in urban centers, were willing to
spending so much time outside protesting is because they were
profoundly unhappy with the increase in the
price of food. The second reason why we might
be worried about an increase in the price of food is if we
take Pak Solhin’s story seriously and we are wondering
that this increase in hunger is going to lead to some
vicious circle. So If you read the World
Bank document about– the World Bank’s job, in a
sense, is to raise money for developing countries. So part of the World Bank’s
communication department job is to be slightly alarmist, so
we need to take everything they say with a pinch of salt. But one of the thing that they
would very frequently say is the price of food increase– that makes the poor poorer. That makes them more difficult
for them to get enough calories, which means they
can’t work as hard, which means they will be plunged
back into poverty. And so this is the story that
Pak Solhin told us in our first lecture. And that’s what I want to
investigate with you today, whether we have reasons to be
worried about this kind of immediate vicious circle. So I want to give us a quick
refresher of what’s Pak Solhin’s story. So with your daily wage, it’s
a short term nutrition, a nutrition based poverty trap. With your wage, you buy food. That gives you strength, and
allows you to get some more wages at the end. So you buy more food, and
that gives you strength. And you have more wages,
et cetera. And that’s how you survive
maybe on a daily basis. So that means that it creates
a relationship between how much you start from one fine
evening and what is your income tomorrow. And that also means that it
creates a relationship with the wage level and your ability
to do any work at all. So Pak Solhin’s story was that
the wage had dropped because of the increase in input prices
and the uncertainty that the farmer had about
whether they were going to be able to raise their output
prices corresponding. That had led to a decrease in
the wage at the same time as there was an increase in the
food prices, so big decrease in the real wage in term of the
food entitlement of a day of work as Amartya Sen would
say, which means that if you took this food entitlement and
you had nothing else to supplement it with, this just
was not enough to give you the strength to do the work
to earn that wage. So that means that someone like
Pak Solhin that had no extra resources was not
able to work at all. So that creates an inequality
among people. Take Pak Solhin and imagine
that, in fact, he also had a little piece of land. Then what could he have done
with this little piece of land once the wages had gone down? Ben? AUDIENCE: Sell some of it. PROFESSOR: So he could have sold
some of it to get money. Or he could have rented some
of it and get money. So suppose he rents some
of it and gets money? So he starts the morning with
1000 rupee he has from the rent of his field. And that can be complimented
with whatever wage he’s earned yesterday for his work. And that might be enough to give
him the strength to do a day of work. So if you compare Pak Solhin to
his brother, for example– he has a brother in
the story, right? If you compare Pak Solhin with
his brother, who had a piece of land, they might be exactly
similar in term of their underlying body and their
strength, et cetera. But the fact that one of them
has a piece of land allow them to work, and therefore they
start with a little bit more non-labor income, which gives
them much more labor income. So the existing inequality
in non-labor income is strengthened by the inequality
in labor income, which is very different from what we would
see in our standard models where the richer people would be
less likely to work because they already have the non
labor income money. So the labor market would serve
to make people more similar rather than
less similar. So that’s the story
he told us. And as we saw last time, the
necessary condition for such a poverty trap is that the
capacity curve, which relates your income to that, your
income tomorrow via the biology of the body, has this
S shape curve that we discussed that intersects below
the 45 degree line, then at some point crosses it
and then comes back. So we are not going to go back
to that, because we saw it in detail last time. That was supposed to
be the shape again. It doesn’t want to come back. So the S shape is made
of two relations. The S shape is the relationship
between income today and income tomorrow,
midrow since I can’t have it on the slide. So this is income today
and income tomorrow. And so the S shape is actually
not one function, it’s the product of two functions. One is given how much income you
have, how much calories do you decide to eat? And then the calorie
that you eat– how much productive
do that make you? So if we write it in math, it’s
like there is income, nutrition is equal to g,
function g of income today. Because you get your wages and
then you eat some good meal. And then income tomorrow is
a function f of nutrition. That means that income
tomorrow is f of g of income today. So this is what makes
this S shape. So what we can do today is to
look separately at these two relationships. What’s the strength of the
relationship between income tomorrow and nutrition today? And what’s the relationship
between nutrition today and income today? And here, when I mean today and
tomorrow, I really mean today and tomorrow. This is a short run phenomenon
that we are talking about. Maybe next week, but
not a matter of generations or years. So suppose that there is indeed
that this particular relationship, income tomorrow
and nutrition, is indeed S shape, and suppose that you were
a very poor person, so you are in a low part of the S,
and suppose that you happen onto a bit of money, what would
you do with this money? If this relationship between
income and nutrition was S shape and you were a very poor
person, but you find a pile of money on the ground, what would
you do with the money? AUDIENCE: Well, if that
holds true, then you would want to eat more. PROFESSOR: If that holds
true, then I know you would want to eat more. So that means that if there is
indeed an S shape between income tomorrow and nutrition,
then we should see a very strong relationship between
nutrition and income for the very poor, because it is like
for an excellent investment. If you find yourself here, there
is no better investment you can do than eating
some more. So a first thing you can do is
we can see whether poor people are really trying to
put all of the possible money into food. Now the question is the possible
money, so that means that we would find the share of
food in the budget should be very high for the poor. And the second thing it would
mean is that it would increase quite fast with income. And possibly, it would again
have a form of S shape for the following reason. Suppose that you have some
unavoidable expense to solve. For example, you need a house
and you need some clothes. So unless you live in a very
hot country where you don’t really need much clothes, you
need a house, you need a piece of land to put the house on,
and you need some clothes. So someone who was a budget of
20 rupees will spend, say, five rupees on clothing
and house. They can’t do anything
more than that. And 15 rupees on food. So that’s the poorest person. And then if there is really this
S shape here, this person would be somewhere here. So they would remain
quite poor. And now another person,
comparable in other aspect, but has a total budget of 30
rupees, let’s say because they have some non labor income or
because they have a bit more weight, than they would still
spend unavoidable expenses on clothing and houses, but they
would not do any more. They will still do
just the minimum. And they would spend all
the rest on food. That means that by how much did
I increase the income of this person? Sorry? AUDIENCE: By 10. PROFESSOR: Yeah, 10 out of
20, and [INAUDIBLE]. AUDIENCE: 50% PROFESSOR: 50%, and this is
how much of [INAUDIBLE]? AUDIENCE: [INAUDIBLE]. PROFESSOR: It’s 25 out of 15. An increase from 15 to 25. It’s 10 on the basis of 15. AUDIENCE: [INAUDIBLE]. PROFESSOR: I trust you. You are the MA student. So whatever it is, that’s
going to be on video. 66? Let’s go with 66. That means that when I increase
your income by 50%, your expenditure on food
increases by 66%. So if I divide by one
of the other, what concept is it called? An elasticity. So this means the elasticity
of food expenditure with respect to overall expenditure
is more than one for the extremely poor. Because you start by
taking care of your essentially needs. And after that you’re putting
all of the money into food because you think this
is highly valuable. So this is one thing. And the second thing is now you
go from someone who gets 30 rupees to someone
who gets 45 rupees. So I’ve rigged this so
that it’s nicely another increase of 50%. And now this person who
makes 45 rupees– they’re already kind of over
here somewhere, so the marginal value of one
more rupees into food is not that high. So they are still going to spend
a bit more on food, but only five rupees more. Going to spend a bit more
to have a nicer clothing and some houses. And now they can bring in
entertainment, because now they are basically just
taken care of. The marginal value of extra
is not that high. So they can get into
doing other things. So now the elasticity is
going to be 0.25 to 30. That’s out of 25. Sorry? AUDIENCE: 20% PROFESSOR: 20%, is that? Yes, 20%. 20% out of an increase in 50%. Now the elasticity is
much less than 1. So what we would see is a group
of people, the poorest people, where we have very
high elasticity. And then for anybody who
is somewhat richer, the elasticity of food consumption
with overall budget would be less than 1, which is what
people refer to as the Engel curve, which is the share of
food of the budget increases less than proportionately. So the Engel curve refers to
this phenomenon, which is the share of food increases less
than proportionately as you become richer, but it’s worth
pointing out that in an S shaped world, we would probably
have and reverse Engel curve phenomenon, where
the share of food of the budget first increases
and then decreases. So the question is, do we see
this, that the poor spend as much money as they
can on food? And the second question is, do
we see this, which is do we see anybody who’s elasticity
of food consumption with respect to budget
is more than 1? So that’s kind of where
I want to go next. So first, let’s look at the
food share in the budget around the world. And this comes from
a data set that– the World Bank collect data set
in many countries called the Living Standard Measurement
Surveys. And they very nicely put
them on the website– not all of their surveys,
because in some case, they have agreement with governments
that doesn’t allow them to do that. But a lot of their surveys
are on the web. You can actually download
them and play with them. You’re welcome to do that. And we did that. So we took the overall
expenditure to compute people’s budget transferred
into PPP dollars. So this is people who live
under a dollar a day, at pressures in power poverty,
so in US prices. And look at the share
of their budget. So this is what we find for a
bunch of people living in the rural areas. And this is food, alcohol,
tobacco, education and health. So what are your remarks when
you see these numbers? AUDIENCE: I have a question
about the education percentages. Do those mean that we’d be
paying for tuition or educational [INAUDIBLE]? PROFESSOR: So this is only
education expenditure. So this is tuition if the child
is in a private school or if they get extra tuition,
which a lot of people in developing countries do. They get extra help at home. This could be school uniform,
school books, boarding school for kids who are in
boarding school. Any education related
expenditure would be in there. Yeah, Ben. AUDIENCE: I guess a couple
confusions, [INAUDIBLE]. PROFESSOR: So in 2.1, Mexico
is spending more on alcohol and tobacco than on education. Spends very, very little
on health. That doesn’t mean people
are totally unhealthy. But actually, Mexico has an
excellent health care system, but basically is free
for most people. And in all of the countries,
the share on alcohol and tobacco tends to be at least
comparable to what we see for education and health. Yeah. AUDIENCE: Why don’t the numbers
add up to 100%? PROFESSOR: Because there are
other things you do with your money other than food, alcohol,
education or health. AUDIENCE: Got it. PROFESSOR: Going to the movies,
putting some cloth on your back, that kind of stuff. If it adds up to more than 100,
we’re in trouble, which is quite possible. But I hope not, I hope not. I don’t guarantee it, but
I hope that that kind of mistakes would not always
send scrutiny. Any other observation
on this table? Let me ask one question then. Do you think the share of the
budget on food is high or low? AUDIENCE: High. PROFESSOR: High, you think the
share of food is high? Yes. [INAUDIBLE]. Ben? AUDIENCE: I mean, [INAUDIBLE],
I don’t think you’d have much wiggle room to spend your money
on other [INAUDIBLE]. PROFESSOR: It’s about right. Yeah, so the question is whether
it’s high or low. So one thing I should say is
that it’s kind of viability. It goes from pretty low in
India, 56%, to pretty high in Timor, 77%. Remember, this is all people who
are equally poor in term of their ability to consume
things, because they’re all below a dollar a day at PPP. They make very different
choices. They are quite viable. Whether it’s high or low,
I think it’s in the eye of the beholder. On the one hand, it’s certainly
a high part of the budget, compared to what
people spend, for example, in the US. On the other hand, if you
compare it with, for example, what they spent on tobacco, even
on education, given that a lot of these countries have
a free education system, the education expenditure they are
making are extras, I’m sure surely value extras. But that means that there seems
to be actually some wiggle room, that you could do
something about your food budget and increase it without
sacrificing anything else that’s vital for the house. Yes. AUDIENCE: I just
have a question about what you presented. The people who spend
more on food, is their nutrition better? Or is it [INAUDIBLE]? PROFESSOR: So that’s an
excellent question. We’re going to look into that,
which is when you spend more money on food, it could
be on more nutritious food or more calories. It could be on not so much
more nutritious food. It could be on better
tasting food. And the short answer is that
the two are happening. I don’t know whether it’s true
at the country level. For example, India is a country
that spends very little on food and which has
probably the worst nutritional stages for this group of people
within the world. But at the individual level,
we’re going to see that very soon when people increase how
much money they spend on food, they both get more food and
they get better food, more expensive food for the calories
and the nutrition they are getting. So both things happen
together. AUDIENCE: What is the
requirement for the [INAUDIBLE] children and [INAUDIBLE]? PROFESSOR: No, this
is everyone. This is everyone who lives
on less than a dollar a day per capita. So if there are five of
them, they are entire budget divided by 5. And if no one has any children,
then they won’t spend anything on education. AUDIENCE: They migh have spent
quite a bit more on education. PROFESSOR: This means that per
child, they spend a fair amount on education. AUDIENCE: [INAUDIBLE] is more expensive in South
Africa or Timor, so [INAUDIBLE] basically be buying
the same quantity of food to be spending more. PROFESSOR: Right, so that’s
an excellent point. The point is in answer to the
unstated question, which is what explains this variation
across countries, our first possible explanation
is the relative price of food is different. So food could be relatively more
expensive in Timor Leste, which is why people are spending
more money to get the same thing. What is interesting is that the
opposite seems to be true, which is because India is a
very large economy that is able to produce very many things
in India, the relative price of things like toothbrush,
even DVDs, cellphones– that kind of things
relative to food– is lower in India. So one of the reasons why people
seem to be spending, or one possible reason– I’m not saying this
is a tirant. But this is a conjecture, let’s
say– is one of the reasons why people in India
spend much less on food and more on other things compared to
people in Papua New Guinea, is that there is nothing
to get in Papua New Guinea except food. So if you are poor, like
what can you buy? Well, in India, you can buy
shampoo of this kind, and everything is produced locally,
hence the relative prices are lower. So that’s a possible explanation
for this pattern. Yeah. AUDIENCE: In terms of the
different prices across countries for food, I thought
that the one dollar a day standard was in terms of
purchasing power, so [INAUDIBLE]. PROFESSOR: For your
entire budget. So the one dollar a day standard
takes a basket of consumption good. Of course, food is an important
part o it, but there is also other things that
people consume. So one dollar a day takes
the basket of goods. In fact, the way it’s computed
here, it’s 16 rupees a day, actually– takes the basket of good that is
consumed by the poor rather than your basket of good or my
basket of good, and price it in the different places
and adjust with that. So good plays an
important part. But other things play as well. And then within a single dollar
a day, it could be that, say in India, for example,
food is relatively expensive relative to other
things just because the other things are so cheap
and available. Yes, Eve. AUDIENCE: Could it be that it’s
hotter in India than the other places, so in other places
people need to eat more food to have more fat to
preserve heat, whereas in India, they don’t need to eat as
much food because it’s hot all the time? PROFESSOR: So it could be. It’s a very interesting point,
and we are going to make this point. We are going to see this
point coming up in another guide very soon. The point is that we don’t
know what’s the calorie requirement for a human being,
partly because it depends on the climate and it depends
on what you are doing. And it depends on how much
calories you are losing to illnesses and other
things like that. One piece of evidence that
suggests it’s not the entire story is that if it were the
case, if I looked at the size of the Indian people compared
to the size of anyone else, what should I see? Sorry? AUDIENCE: [INAUDIBLE]. PROFESSOR: Well, in your
hypothesis where the difference is due to the fact
that they need less calories because it’s warm, if everything
was explained here by the fact that Indian people
don’t need that much calorie compare to– see, all these countries
are warm. But compared to South Africa,
South Africa is a bit more temperate, so poor people in
South Africa need to eat a lot because it’s cold when it’s
the winter there. Then if all the differences in
calorie consumption were to be explained by these needs, we
would find people whose nutrition status would
be comparable. So their height would be the
same and their weight would be the same. And in fact, Indian people are
very, very short and they are very, very skinny. Now you might say, yes,
but that’s genetic. It’s just, like, Indian
people are short. But that’s actually not true,
because the children, when Indian migrants come to the US,
they start eating US food, their children are
still smaller. But the children of
their children– some of you might be that– are exactly as tall
as anybody else. So it suggests that the genetic
potential of Indian people in term of height and
body size is no different than that of anybody else. But it’s their nutritional
status that is different. And that affects them directly,
and that affects their children just because
of when you’re in utero in someone who doesn’t eat enough, you’ll also be smaller. For the longest time,
people said Japanese people were short. But it turns out that the height
in Japan are converging to the height of everybody
else in the world. So this is more of a nutrition
thing than all this cereal and maize that we are consuming,
than a genetic potential probably. So going back to sort of the
two punch lines here– one is that this is moving a
lot, which suggests that there is some margin of choices, at
least in India, for example. Second is we have this alcohol
and tobacco that we could, in principle, get rid of. And then all of that would
be extra calories. So that suggests that this is
high, this is important. But there seems to be some
amount of wiggle room take Ben’s word. There is some amount of
wiggle room here. And to look at other form of
wiggle room, so another way to look at it is to look at this
question, which is what is the elasticity of calorie
consumption with respect to your income? So this log per capita outlay
is some fancy way of saying log per capita expenditure,
which is a good measure of your wealth. And what you can see
is that this is the log per capita calorie. This is looking at Maharashtra
in 1993. India has grown a lot since
1993, but Maharashtra in 1993 was a pretty poor place. And what you find is that as
people become richer, they do consume more. The slope of this line
is about 0.3. And the slope of this line when
I run a regression of log per capita calorie on log per
capita outlay, what is the slope giving me? The elasticity. So whenever I go log log
regression, I get the elasticity. Interestingly, this is
not a regression. I mean, this is a regression,
but not a linear regression. This is a non parametric
regression, which means that if the shape had been what I
told you it could be, which is very high elasticity early on,
and then a lower one, so something we would expect if we
were in the S shape world of the elasticity being above
one for the poor and then less, the way they have
estimated this regression allows for this to
be the case. But that’s not what they find. They find the elasticity of
1.5 pretty much constant across the range in the data. Now no one here is very rich, so
it’s quite possible that it starts going down here. But the point is that even for
the very poorest, that elasticity is not above one, so
even the very poorest have an Engel curve phenomenon,
which is as they become richer, they don’t start eating
as much as possible, eating the extra calories up. They’re eating, in terms of
calories, if I increase your income by 10%, you increase
your calorie consumption by 30%. So these two first things
suggest that maybe this is somewhat unlikely that there
would be this very strong S shape, because otherwise people
would be behaving in a very bizarre way. So we’ve seen that. So I think we’ve covered this. So the calories increased with
overall consumption, but not one for one. When total expenditure
increased by 10%, the consumption of calorie
increased by 3.5%. So we have an Engel curve. That is true for everyone. So why is the slope of the Engel
curve less than one? So what happens is what was
suggested earlier, which is when people get a bit more
money, they do increase the share of the budget going
to other things. So the elasticity of overall
food expenditure is less than one. It’s about 0.7. So if I increase your budget by
10%, you increase your food consumption by 7%. And then it means you increase
something else more than proportionally. So maybe you start spending
money on the movies, which you were not doing before. So that’s the first thing. So 7% is not 3, though. So what is the difference
between 7 and 3? When I increase your budget by
10%, you increase your food budget by 7%. But your calories only
increase by 3.5. So what happened in
the meantime? [INAUDIBLE]. AUDIENCE: Maybe all your food
wasn’t as high in calories. PROFESSOR: They bought more
expensive food anyway. Maybe because that food was
yummier, maybe because it was more nutritious, but certainly
more expensive food. So what happens is that when
you spend more on food, you start buying more expensive
calories and you do that in various ways. You start eating meat instead
of eating cereals, and you start eating more expensive
cereals instead of the course cereals you were
eating before. And even within the more
expensive cereals, rice for example, you buy more
expensive rice. So all of this margin happens. And we can see it here
in the table. We can see this is Maharashtra,
1983. These are the poorest
10% and the top 10%. We can see that the poorest 10%
spent 46% of their budget on cereals, and the
top 10%, 31%. And if we look at meat, meat
is 8.5% for the poorest and 12% for the richest. Things like are constant,
however, in terms of fraction of the budget is sugar. And the sugar actually goes
down 7.425%, and oil. That remains about the same. The fraction of the budget spent
on oil is 9% for both. But you get cereal going down,
and you get meat going up. And the price per calorie of
cereal is much cheaper compared to the price
per calorie of meat. And now within cereal, people
who are poor spend 9% of their budget on the rice. And the rich are spending
almost 11% of their budget on rice. And then the price of rice is
also cheaper than the price of other things. Price is more expensive, sorry,
than other things like the course cereal. And even within rice, the
poor are buying cheaper rice than the rich. The poor are spending 18 paise
per calorie for the rice, and one rupee per calorie for
the richer people. So all of this margin happen,
which again suggests that there is some amount
of flexibility. Because otherwise, what you
would do is to, within the same budget, continue to eat
the same thing, but more of the same thing. So if you were at subsistence
level, the share of your calories that comes from
the staple food would remain constant. And it’s only after you’ve
reached some level of subsistence that you would
say, now I can start eating more meat. It’s more expensive,
but it’s yummier. And so the fact that even for
these relatively poor people who see that the share of
calories that comes from rice declines is an indication that
they probably see themselves having some margin of choice. So even among the very poor
people, an increase in economic well being has
positive, but not a huge, impact on calories consumed. So you take the poorest person
here and you increase their budget by 10%, they will
increase their calories by 3.5%, partly because there are
other things they like to do, partly because within
food, they also like to eat better food. So that brings us to this Jensen
and Miller idea, which is the idea of a Giffen good. So what’s a Giffen good? AUDIENCE: It’s a good that
when the price increases, there’s an increase in demand. PROFESSOR: When the price
increase, there is an increase in demand. That’s right. Why is that surprising? AUDIENCE: Because generally
the demand curves– PROFESSOR: Yeah, go ahead. AUDIENCE: Generally as the price
increases, there’s a decrease in the demand
for the quantity. PROFESSOR: Generally, we
think of the demand curve as looking down. So if there is an increase
in the price, you decrease your demand. So why is it not a violation
of everything we know about economics? AUDIENCE: Because if the price
of some good increases, then you wouldn’t be able to
substitute out [INAUDIBLE] pretty easily. So the example of rice and
meat– if the price of rice increases, then in order to get
the calories you need, you might have to buy more rice
and just stop buying meat. PROFESSOR: Right, Mr. Giffen is
referred to by who for the first time? Are there some writings
by Mr. Giffen? AUDIENCE: Indiana Jones. PROFESSOR: Indiana Jones– but before that. So Mr. Giffen– we have no
writing from him directly, but he was referred to
by Adam Smith. And Adam Smith gives
the example of potatoes in Ireland. The price of potatoes goes up,
but potatoes is such an important part of the budget
that when the price of potatoes goes up, it does an
income effect, so that is always true. When the price of a good goes
up, it has an income effect and it has a substitution
effect. What do we know about the
substitution effect? Yeah. AUDIENCE: Generally when the
price of one good goes up, [INAUDIBLE]. PROFESSOR: Right, so when the
price of a good goes up, you substitute to another good. So the substitution effect
is always negative. But the income effect can be
either positive or negative. So the income effect– in what case is it positive? So for example, if you look at
iPod consumption, would that tend to have a positive
income effect or a negative income effect? So the goods that are more like
luxury goods, that are a bit expensive, will have
positive income effect, meaning as you become richer,
you will consume more of them. The goods that are cheaper and
that are not particularly desirable will have negative
income effect. For example, think about
your own budget. As you become richer, maybe
you are going to buy more orange juice. That is a positive
income effect. Maybe you are going to get
fewer macaroni and cheese pre-packed. That has a negative
income effect. So the income effect could be
positive or could be negative. It’s positive if it’s
a normal good. It’s negative if it’s
an inferior good. So now something like potato is presumably an inferior good. That’s not something
people love. It’s something that as they
become richer, they will try and substitute to
another thing. So the question is whether the
income effect of an inferior good like potato is so large– not only it’s negative, but it
is so large that it out does the substitution effect. So if the income effect is so
large that it more than compensates for the substitution
effect, then you might be getting a
different good. So that is the story of the
potato famine, which is possibly apocryphal,
the story being the price of potato increases. But that makes people poorer,
so that actually increases their consumption of potatoes,
because they stop eating meat, and they eat only potatoes
because they have no money left to buy any meat. So this is a different good. So until this paper, I think
there was a strong suspicion among economists that
different goods– actually, they didn’t exist,
but they were a nice theoretical possibility, but
that in practice, you don’t see a good where the income
effect is so large that it outdoes the substitution effect,
so that if you become richer, you eat fewer
potatoes. But if the price of
potatoes declines, you eat more potatoes. So this is the story. So a staple food that
constitutes a large part of the budget, like potatoes for
Irish famine or the example they have in China are what? AUDIENCE: These were two
provinces in the North [INAUDIBLE]. PROFESSOR: Wheat and rice. So these are foods which are a
fairly large part of the food budget and a fairly large part
of the overall budget. So this is a good confident
for a different good. Because for the income effect to
have any chance to be large enough, it has to be something
that takes a large part of your budget. So that’s why they decided
on this thing. So the first thing they’ve done
is they looked at these two provinces and they observed
that, for example, in a rice consuming region, they
observed that in cities where the price of rice is higher,
people consume more rice. And first, they are very happy,
and they said oh, we have found our Giffen good. But then they get depressed and
they realize maybe it is not a Giffen good. So why do they conclude
that it doesn’t give them a Giffen good? AUDIENCE: [INAUDIBLE] is it because the price is
higher that people consume more rice, which would make it
an incident? or is it that people consume more rice, so
the price becomes higher? PROFESSOR: Right,
we don’t know. We are trying to trace
a demand curve. But if we only observe prices
and quantity, we might be tracing the supply curve. So we don’t know whether we have
traced the demand curve or the supply curve. And this would be the normal
shape for a supply curve. So this is exactly the same type
of problems that we were facing when we were trying to
look at the effect of malaria prices on bednets, which is if
we just look at the variation in the world, there is the
effect that we are trying to identify, and there is a
possible of a reverse causality, in this case, very
clear, which is we also have a supply curve that we are
trying to trace. So that’s why they decided
that’s not working. So what did they decide to do? AUDIENCE: They subsidized
rice and wheat. [INAUDIBLE]. PROFESSOR: Exactly, what they
decided to do is to run the maize experiment where they
subsidized the price of rice in the rice consuming region
and wheat in the wheat consuming region at
various levels. I think there are three
levels of subsidies. So they take a sample
of households. They distribute a voucher for
the reduced price of rice in Hunan and reduced price of wheat
in Gangsu to a random sub sample for more than a
month’s supply every month. They made sure that
the household wouldn’t extend them. Otherwise, what would be a
problem if households started trading them? AUDIENCE: [INAUDIBLE]. PROFESSOR: Exactly, in
particular you try to reduce the price. But if you give voucher and
people start exchanging them, think of food stamps when people
sell their food stamps. When they sell their food
stamps, they are getting money, which is– I mean, it’s not bad. But why do we think
it’s an issue? And why would there
be a theoretical issue in their cases? AUDIENCE: Essentially, the price
of the rice would need to be changed. PROFESSOR: It wouldn’t
be changing. So the people would get their
voucher, and then they would sell it to someone. So they would get
money instead. And then they would, with that
many, perhaps buy some rice and wheat and buy some
other things as well. So their experiment where they
tried to change the price of rice or wheat would end up just
changing their income without changing the price. Because the marginal price that
they are facing once they have sold their voucher is the
same, except they now have more money. So now all they would identify
is the income effect. And of course, the income
effect would be negative because that’s an
inferior good. So they would be finding
a Giffen good. But that would not
be a real one. That would be a fake one due to
the fact that their price experiment would be transformed
into an income experiment. So it’s very important for
them to keep the price experiment in tact. So they tried to do that and
they tried to argue in the paper and in the post that you
read in Freakonomics that they’ve done this properly. And after six months, they came
back, and then they asked detailed questions about the
consumption of rice, wheat and other things. So what do they find? So I’m going to show you the
regression table which gives us the results directly and
explain to you what’s in the regression table. So it’s a long table. But for now, focus on
the first column. So what they regress is the
percent increase in rice consumption over the
percent subsidy. There are three groups
of subsidies. I was looking everywhere in the
paper for you to have the three prices and the three
reductions so that I could plot them, but they
were not there. So this is the overall result. So basically, the way you
read this graph– it’s saying that your
consumption of rice reduces by 23.5% when the subsidy
increases by 100%. It’s directly a percentage
of a percentage. So your consumption of rice
reduces in percentage about a quarter of the reduction
in price. So the important thing
here is, of course, that it’s negative. And below the coefficient
here, you get the standard error. So the coefficient is 0.235. The standard error 0.14. If you divide by one the other,
you get the familiar T statistics. This one is above 1.7, so this
means this is significant at 10% level, which tells
you that this is not entirely due to chance. This negative is
not some fluke. It is something which is
indeed significantly different from 0. So that’s what they
find for Hunan. And then they find the opposite
for seafood, where the elasticity of seafood
consumption with respect to the price of rice is
very positive. So what happened in
their experiment– this is your typical Giffen
good behavior– is the price of rice increases,
but increases because rice is such an
important part of your budget. It amounts to increasing
your income. And because of this increase in
your income, you feel that you can now get more of your
calories from shrimps and fewer from food. So that’s for Hunan. So this is the explanation. And for Gansu, we have a
positive elasticity. So it means that wheat doesn’t
appear to be a Giffen good in Gansu. It appears to be an
inferior good. It increased less than one for
one, but in fact, it’s not significantly positive. But it’s certainly
not negative. And they explain why they find
a different result in a different place. [INAUDIBLE]. AUDIENCE: What prevented then
from just [INAUDIBLE] rice they got to give more money
by substituting goods? PROFESSOR: Right, so they
tried to stop that. But we don’t know for sure
that they succeeded. What they were very worried
about is the resale of the voucher. And their view then is once you
had resold the voucher, then you wouldn’t have
resold the rice. And what they did after that
is they did a survey. So the data here doesn’t come
from the administrative data of what was sold in the shop. The survey comes from what
people consumed at the end of the day. So to the extent that people
didn’t lie to them, this is the actually consumption. So it could still be the case
that they bought the rice. They sold the rice. They bought the rice with the
voucher because they couldn’t exchange the voucher. But then, they went to the
trouble of selling the rice. And that’s why it’s just an
income effect that we are estimating, which is
why it’s negative. They tried to argue that it
didn’t happen, but that’s, of course, a key concept. So what do they say about wheat,
that why did the wheat show them a different good for
the wheat, but they have one for the rice? AUDIENCE: Because people aren’t
eating wheat itself. They’re eating wheat products,
like noodles. PROFESSOR: Exactly, you are
saying that it’s not their own group, that people rice. They don’t buy big packets of
wheat, so that it was kind of the wrong idea. This, of course, has implication
for nutrition, and in particular for a very
frequent policy that we find in developing world, which is
food price’s subsidy for greater nutrition. So for example, in Indonesia,
we have the ration program. If you remember, in Pak Solhin’s
stories, he got some free rice from the
ration program. In India, India just introduced
the Right to Food Act and a subsidy scheme
for rice in rice consuming regions. So India has something called
a public distribution system where they distribute food to
households at reduced prices, to poor households at
reduced prices. Egypt spent something like 3% of
its GDP on food subsidies. So food subsidies is a very
important part of help to the poor in developing countries. It’s also a very important
part of our– our meaning the US– aid to poor countries is in the
form of food aid, directly food which we send to
poor countries. Why are we spending a lot of our
aid in terms of food aid? AUDIENCE: [INAUDIBLE] lot of food [INAUDIBLE]. It’s easier for us to just
take that [INAUDIBLE]. PROFESSOR: Yes, so part of the
reason why a lot of our aid is in the form of food aid
is that it’s also aid for our own farmers. And it’s a way of kind of
buying the [INAUDIBLE] and sending them out. So when the weather has been
good in the US and the harvest is very big, a lot more food
aid is being spent all over the world. But with that aside, this is a
policy that many countries have to try to subsidize
the price of food. But if we have something like
the Giffen good, what may happen if you make the price
of the staple less high, if you make the price of
the staple lower? Yes. AUDIENCE: Then they’ll spend
their income on other sorts of stuff, not on the [INAUDIBLE]. PROFESSOR: Yes, we might find
that something like this happens, which is the price
of rice has now gone down. Instead of eating more rice,
you ate less rice and more shrimps and maybe also
more cellphones. So if rice is indeed a Giffen
good, the increase in the calories you are getting from a
decline in the price of rice might actually not
be very high. In fact, it might even
be negative. Because if the income effect is
sufficiently large, it made outdo, again, the
price effect. And we might find that as we
make food cheaper, people eat less instead of eating more. And that’s exactly what they
found in Hunan where rice was a Giffen good. They find that as you decrease
the price of rice, people eat fewer calories, not more. So this would be the very
standard poor price policy in your average developing
countries, to try to subsidize the staple. And the justification of this
policy will typically be in the form of we need to
increase the calorie consumption because people are
trapped in poverty trap like our friend, Pak Solhin. But in fact, if you look at this
for this urban household in China, you find the opposite,
which is subsidizing the price of rice actually
leads to fewer calories consumed. And it’s not because people gain
in terms of other micro nutrients, though we
don’t have all the other micro nutrient. But we get fewer portions
being consumed as well. So this is what they find
in Hunan, but they don’t have it in Gansu. So it’s not to say that
it happens necessarily everywhere, but it is something
that might happen. So it is not a total given that
a reduction in the price of food will lead to an
increase in nutrition. On the bright side, it also
means that it’s not necessarily a given that the
current increase in the food prices that we are observing
will lead to people eating fewer calories. Because it might have this
progress effect of making them poorer and therefore leading
them to eat more of calories. AUDIENCE: Yeah, I think
one way [INAUDIBLE] food [INAUDIBLE]. Because, for example, if you eat
shrimps, shrimps may not be very calorie rich. In India, people eat
a lot of lentils. And the next thing that they eat
to rice is durum, which is actually full of protein. So eating less rice, and if they
spend more on protein, [INAUDIBLE]. PROFESSOR: Right, so this is,
of course, completely dependent on what you
substitute with. If you substitute rice with
lentils, actually it might be more nutrition, and more iron,
more nutrition, et cetera. So we might find an increase in
nutrition due to subsidy in the price the rice. So the only point here was
not to say that it has to be the case. It was to say that it doesn’t
have to be the case that subsidizing the price the rice
will lead to more rice and more calories being consumed. Now let’s look at India,
precisely. So before that, there is
something that should surprise you in when you put together
this Jenson and Miller result and what we had before
in India. We found that a household that
are 10% richer eat about 3.5 more calories. But the Jenson and
Miller result– what does it suggest about
the income effect? We are finding that when the
price of rice decreases, you eat less, not more. What the income effect
has to be? AUDIENCE: It’s negative. PROFESSOR: It has
to be negative. So on the one hand, I showed you
positive income effect– maybe not very large, but
certainly positive for India. On the other hand, I’m showing
you price effect in China which suggest that the income
effect has to be negative, and in fact, very negative. So how can this be? How can we have the two
things together? So the first thing is that in
India, we were comparing different households. We were not comparing the
same household to which I give more money. And different households
are different. Maybe they’re households
that are a bit richer. They are also more educated and
they understand the value of nutrition, and that’s
why they eat more. So the idea in experiment would
be to give people a little bit more money, really
literally do that and see whether they spend this
money on food or not. And that would allow us to
estimate the income effect. To my knowledge, no
one has done that. It’s a little bit difficult
to parachute [INAUDIBLE] drops of money on people– not impossible, but it’s not
been done, I don’t think. So what we have when we looked
at the India curve, we find that people who have more
money eat more. But it may be because they have
different tastes or it might be because they eat more,
and therefore they’re more productive, therefore they
have more money, so the opposite relationship. So that may be an
underestimate. That positive estimate, which
was already not that high of the income effect, might have
been an over estimate. And one thing that’s
suggested– and it goes back to
[? Swati’s ?] point earlier– is when we plug the Engel curve
over time in India, we see two interesting things. Number one, all of the Engel
curve for the rural areas are above the Engel curve
for the urban areas. Why do you think that
would be the case? AUDIENCE: The work in the rural
area is much more labor intensive, so you need
to eat more to have physical strength. PROFESSOR: Exactly, the work
in rural area is more intensive, and so they
need more calories. So this is interesting that
you are making this point, because this is the point you
were making earlier about maybe the needs of calorie in
South Africa are bigger because it’s colder. So that’s the first
things we notice. So this we can explain. And what’s the other interesting
trend in this picture is that over time, the
Engel curves are falling down. People are eating less, and
less, and less for the same level of income. So what happened in India over
time is that, of course, people got richer. So if the Engel curves had been
stable, they would have eaten more. But because the Engel curves are
also falling down at the same time, what happened over
time is that people are moving first across to another Engel
curve and then up along an Engel curve. So take someone who would
be at a log income of 5. 15 years later, they have a log
income maybe of 5.5, but the Engel curve have
also moved. Take someone who is at 5, and
then 15 years later, they would be, let’s say, at 6. But now we need to find the 6 on
the much lower Engel curve. So instead of eating more, as
they would have if the Engel curve had become stable, we find
that people in India eat less and less. So over time, the poor in India
are eating less and less instead of eating more and more,
which does suggest some negative income elasticity for
the country as a whole. The country is becoming richer
and those people are becoming richer, but they are eating
less and less. So this now starts to make sense
with the two results, where maybe the income
elasticity of food consumption– not only it’s not above one,
which is what we would have in a poverty trap kind of a
world, but it might be negative, which is as people
become richer, they– a funny thing– eat fewer calories. So if we look at nutrition in
India, we have a pretty interesting phenomenon, which is
this is the share of people who are eating below 2,100
in urban areas and 2,400 in rural areas. This is the number of calories
they consume per head. Why are these interesting
thresholds? Yeah. You had a question or you
were just moving? AUDIENCE: Yeah, I was going
to ask [INAUDIBLE]. PROFESSOR: Go ahead, go ahead. AUDIENCE: I was wondering
if that couldn’t just be explained because of inflation
and not necessarily for a negative effect. PROFESSOR: Very good,
I could be that the price of food has changed. People have become richer, but
food is now more expensive. Remember, it has to be relative
prices, because people have become richer
in real term. Even corrected for inflation,
India is richer now. And there are also fewer
poor people. But it could be that food prices
increase relative to other things. And that’s actually not
the case until 2005. And then it became very much
the case after 2005. But these results are until
2005, where the relative price of food were relatively
stable. That’s a very good point. 2,100, 2,400. Yeah. AUDIENCE: So I was just
wondering the calculation that was done for people who are
doing sort of intensive labor, how many calories they would
need as a bare minimum to be able to succeed in that? PROFESSOR: Again, we don’t
really know how many calories we need, but this is
what the Indian government says you need. And maybe they get it a bit
wrong, because this is the fraction of people in rural
area who are getting less than they need. So it’s very high. Yet these people are
still all alive. But what is striking is that
this is increasing both in rural area and in urban area,
but even more in rural area. So one first explanation was
yours, is maybe it’s the relative price of food. That would be true after 2005,
but not until 2005. What could be other
explanation? AUDIENCE: Maybe a lot of poor
people have come from rural areas, and very poor
[INAUDIBLE] rural areas and then sort of
broke up into rural areas [INAUDIBLE]. PROFESSOR: So that’s a
very good suggestion. Maybe that the people who are
in rural area now are the very, very poor, so they are
relatively poorer, so we get more of them who are
eating less. And the urban area also getting
poorer, because the people from the rural
area move to them. That’s a very good suggestion,
a composition effect. That probably doesn’t explain
it, because if you look at that overall consumption per
capita of these people, are the function of people who live
below a dollar a day, that is going down here
and down here. So that’s probably not– AUDIENCE: There has been
more technology. They’re going to spend other
money on other stuff. PROFESSOR: Right, so this would
be another explanation, which is the similar explanation
from what we are seeing on the wall, which
is there are more and more things available. In particular, one thing that
has clearly happened is the advent of cell phone. And so now cell phones weren’t
there, and now they are there. In India, you can get a cell
phone and airtime everywhere. And so that’s one thing. So more things become available,
very good. Yeah. AUDIENCE: I think this might
be what you meant, but technology that might make the
work easier, so you require fewer calories because the
work is not as difficult. PROFESSOR: Right, this is not
what she meant just now, but that’s what she meant earlier. So I was surprised she is not
making this point again. But that’s exactly a very good
point, which is maybe these are what the Indian government
says, but who knows what they know. And maybe the calorie
requirements have changed. One of the reasons would be that
you’re less likely to do back breaking work, or maybe
because there is more irrigation, there is more
mechanisation of agriculture. People are less likely
to be in agriculture, even in rural areas. What would be another reason
why the calorie requirement would have gone down? So one is clearly, you are
less likely to work. What competes with calories
with you? AUDIENCE: Are you talking
about worms and health? PROFESSOR: Worms, and health and
diarrhea, and other nice things like that. Generally being sick consumes
a lot of calories. And so one thing that has
happened in India is drinking water has become more available
and cleaner, so people are much less
likely to be sick. Another thing that uses a lot of
calories is being pregnant, and you have many fewer
children being born. So that’s also compete
less for calories. So one possible reason for all
of these, for these changes, is that the calorie requirements
have just changed and people are staying at the
same level as before. They spend less. And they are used to a
particular level, so they just stay there, and it costs them
less money than before. So this leads us to a
possibility for why people are not easy more generally. Maybe they’re not eating because
that’s not such a great investment. And so when we went through
out little theory section here, we said that if you happen
to be right here in the capacity curve, it’s very
valuable for you to eat. But if, in the real world,
the effect of calories on productivity is not that loud,
then you might as well do something else with
your money. And in fact, what we find when
we look at the effect is that this is the effect of calories
consumed on your productivity if you’re a farmer
in Sierra Leone. And it’s hard to find a job that
requires less strength than being a farmer
in Sierra Leone. And what you find is that
while it is increasing, certainly, people
who eat more– this is your calorie
consumption, and this is how productive you are– people are more productive
when they eat more. But what’s the shape
of the curve? AUDIENCE: [INAUDIBLE]. PROFESSOR: It’s our inverted
L shape, and it’s not greater than one. So now we finally can answer
the question that you asked ages ago. There is no real sign. This is probably the most
favorable case, which is why I put it on the board. There is no real sign that this
phenomenon that you need to eat enough calories,
otherwise you can’t be productive enough to do anything
is really there. So in the very short run,
everything starts to fit, which is people don’t really
need the extra calories that much, because the extra
calories makes them productive, but not that
much more productive. Hence, they are not
eating them. And in fact, we see over time
that they are eating less and less of the calories
because they need less and less of them. And they have a level of
strength that allows them to do their day to day work, and
with the rest of their money, they do other things, and that
makes now perfect sense. So in terms of policies,
what does it mean? Well in term of policies, it
means that policies that are going to insist that the big
problem is starvation in terms of not eating enough grain
are probably going to be misleading, and are probably
going to lead to a fair amount of waste. So in summary, at the maximum
when your income today increases by 10%, your calorie
consumption increase by 3.5%. That’s what we saw in India,
and that’s almost surely a wild over estimate. But let’s say that it’s
a maximum possible. And then your productivity– you multiply that by another
4%, so when your income increases by 10%, your income
increases by 1.4% tomorrow. That would be the S shape,
except it’s not S, because there is no point where it would
cause the 45 degree line from below, because the
elasticity is much, much less than one instead of
being above one. So we don’t have a place where
the curve is crossing the 45 degree line from below. The curve is just not steep
enough to create a poverty trap from this phenomenon. Just to be sure that you don’t
go away thinking everything is well, this may be very different
from other things than calories, for
example iron. And this may be very different
for children, because the investment in a child, the
investment you’re making at one specific time is going to
help them for their entire life instead of just
for tomorrow. So what we are going to do on
Thursday is look at what I call the hidden trap, which
is that there might be a nutrition productivity poverty
trap, but it’s not in the usual sense where we
were looking for. It’s in these more subtle
things, nutrients, micronutrients, children’s
nutrition, pregnant women’s nutrition.


  1. Nutrition is a major issue here in these united states, We have 30% obese , sick people
    health care establishment care less about proper nutrition, industry sell statins , diabetes in the rise , people can't ride a bicycle , stay active then get sick and buy expensive drugs.
    MGH is a big crystal castle , MRI cost 4000 $ .
    Animal farm is here .

  2. Nutrition is taught in FREE Public Schools. SNAP provides FREE food.

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