Figuring out how to deal with today's critical economic problems is perhaps the great challenge of our time. Much greater than space travel or perhaps even the next revolutionary medical breakthrough, what is at stake is the whole idea of the good life as we have known it.
Immigration and inequality, globalization and technological disruption, slowing growth and accelerating climate change--these are sources of great anxiety across the world, from New Delhi and Dakar to Paris and Washington, DC. The resources to address these challenges are there--what we lack are ideas that will help us jump the wall of disagreement and distrust that divides us. If we succeed, history will remember our era with gratitude; if we fail, the potential losses are incalculable.
In this revolutionary book, renowned MIT economists Abhijit V. Banerjee and Esther Duflo take on this challenge, building on cutting-edge research in economics explained with lucidity and grace. Original, provocative, and urgent, Good Economics for Hard Times makes a persuasive case for an intelligent interventionism and a society built on compassion and respect and show how economics, when done right, can help us solve the thorniest social and political problems of the day. It is an extraordinary achievement, one that shines a light to help us appreciate and understand our precariously balanced world.
Abhijit Vinayak Banerjee is an Indian economist. He is currently the Ford Foundation International Professor of Economics at the Massachusetts Institute of Technology. Banerjee is a co-founder of the Abdul Latif Jameel Poverty Action Lab (along with economists Esther Duflo and Sendhil Mullainathan) and a Research Affiliate of Innovations for Poverty Action, a New Haven, Connecticut based research outfit dedicated to creating and evaluating solutions to social and international development problems, and a Member of the Consortium on Financial Systems and Poverty. He was awarded 2019 Nobel Memorial Prize in Economic Sciences for his experimental approach to alleviating global poverty. He is also the recipient of the inaugural Infosys Prize in the category of Social Sciences (Economics).
This book has a huge amount of good economics. It surveys a wide range of areas: labor, tax, growth, politics, immigration, trade, and generally provides up-to-date discussions of some of the latest literature. The discussions of development--particularly India--are subtle, nuanced and thought provoking. A lot of the evidence is in the form of randomized control trials (RCTs), Abhijit Baanerjee and Esther Duflo are as committed to the method and process as they are to any particular conclusions. They are also consistently skeptical of neoclassical theorizing on the basis of first principles, and particularly critical of the ideas of people's preferences as having special weight (a la Becker and Stigler) because they see these preferences as shaped by society and malleable.
Banerjee and Duflo do not limit themselves to RCTs and attempt to discern what can be learned without them on a variety of topics, although they mostly throw their hands up at the impossibility of understanding some of the big questions in growth--like what other countries would need to do in order to achieve Chinese-levels of growth.
The book also has an interesting shifting back and forth between the advanced economies and developing ones, drawing out similarities but also contrasts between them that help better understand each. Often this technique and presentation works, but sometimes it does not and creates a slightly disjointed feel.
What was disappointing to me--and I say this relative to my high expectations based on the authors, their research, and also their previous book Poor Economics: A Radical Rethinking of the Way to Fight Global PovertyPoor Economics--was that when it came to the biggest contemporary hot button issues they left all nuance and care behind to present selective evidence for an overly simplistic narrative that would be comforting to typical progressive reader without challenging any of their preconceptions. Moreover, they framed their view too much in terms of "good economics vs. bad economics" and the "facts" when it was actually a very substantial dose of values that were in play (many of which I agree with) along with a subset of the facts that would be more suitable to a polemic than a self-styled balanced presentation.
1. On immigration, they present a 100 percent positive picture while denying that there has been a very rapid and in many countries unprecedented change in the composition of the population. I happen to think this change is wonderful, but understand that many others do not--and their perception of the facts is not entirely wrong. Banerjee and Duflo, however, essentially deny these facts writing, "MIGRATION IS BIG NEWS, big enough to drive the politics of much of Europe and the United States. Between President Donald Trump’s imaginary but enormously consequential hordes of murderous Mexican migrants and the anti-foreigner rhetoric of the Alternative for Germany, the French Rassemblement National, and the Brexit crew, not to mention the ruling parties in Italy, Hungary, and Slovakia, it may be the single most influential political issue in the world’s richest countries… Why the panic? The fraction of international migrants in the world population in 2017 was roughly what it was in 1960 or in 1990: 3 percent…. Racist alarmism, driven by a fear of the intermingling of races and the myth of purity, doesn’t heed facts."
The "facts," however, from the same source they cite for the 3 percent statistic is that the foreign-born share of high-income countries has risen from 7.6% in 1990 to 14.1% in 2017 with even faster rises in several of the countries they cite. "Facts" and "economics" do not settle the debate about whether this change is wonderful or threatening and demeaning the people who find it threatening as factually delusional does not help build understanding, change minds, or advance good economics.
2. The discussions of inequality have a similar feature. Words like "exploding inequality" and "hard times" overstate what the data say. A wide range of data show that a inequality is high and has increased, but Baanerjee and Duflo rely too uncritically on just one source and perspective on the data (Piketty, Saez and Zucman), missing out on the nuance they bring to other areas of discussion. In the process, they don't address the methodological choices made by these authors or present any facts that run counter to their narrative (e.g., CEO pay relative to median worker pay has been flat for two decades now, the very richest Americans are less likely to be inherited wealth than in the past, mobility is higher at the bottom of the income distribution than the top, income of the bottom quintile or the median is very highly correlated with average incomes across countries, the fiscal system has become more redistributive, etc.)
Overall, the term "dark times" that a is the subtitle and leitmotif of their book seems somewhat off for the United States (when in the past would rather be alive than today?) and is particularly off for a book that devotes substantial fraction of its focus to India and other developing countries, places that are growing rapidly and have lifted massive numbers of people out of deep poverty (points they also make in the book).
I have no dispute that we could and should do a lot better in the United States and around the world (inequality is too high, income growth and mobility too low, etc.), just wished the evidence was a presented with more nuance.
3. The discussion of taxes is a useful corrective to the wild-eyed claims of many conservatives about the huge growth potential of cutting taxes. But in the course of this corrective, the authors' almost appear to deny that incentives matter at all, that taxes can affect welfare and macroeconomic outcomes, and the like. Some of the evidence they present for these propositions is high quality, as in top journals. But others were observations like tax rates were high in the 1950s and growth was high, ergo taxes don't hurt growth, statements that do not meet the evidentiary standards they set elsewhere and that express more confidence in a precise estimate of zero on the impact of taxes as opposed to failing to reject. a null of zero or even the magnitude of uncertainty they appropriately express in the chapter that discusses growth.
4. My fourth example is much less clear cut, more of a disagreement than a clear cut issue. But I think Banerjee and Duflo overly caricature trade economics as an apologia for trade that has almost entirely ignored inequality, something I think is too simplistic a presentation of a field that has its modern theoretical origins in Heckscher-Ohlin and Stolper-Samuelson which are all about inequality (and discussed extensively in Good Economics). Moreover, I think the authors' place too much weight on the Autor, Dorn and Hansen China Shock literature which I view as largely about the gross costs of trade not the net costs of trade because they fail to capture the general equilibrium effects and the tremendous gains from exports. Moreover, it is not clear if the China Shock tells us about China's entry into the WTO or China's growth, likely it is more the later than the former--which matters because it is more about developments in China than policy changes in the West. I also think their discussion of the "dirty little secret" that the gains from further trade liberalization are small in advanced economies puts too little weight on the fact that standard static Ricardian models may miss gains that come from increased competition, a larger market for innovation, learning by exporting, increased specialization in innovation, supply chains, and regulatory reciprocity or even harmonization. I don't know how big the gains from all of these are, they do not lend themselves to precise modeling, but it is possible they are substantially larger than the Ricardian effects that do lend themselves to precise quantification.
The above really emphasizes everything I disagreed with, but I want to reiterate what I began with--much of the book is a fabulous, sophisticated, exciting discussion of economics and what it can teach us about some of the most important issues in the world today. These criticisms are out of respect for the mission the authors accomplish in much of the book--to present a balanced picture of the facts, the good economics that interprets these facts, while also being honest about our uncertainty and the limits on our understanding.
This wasn’t the book I was afraid it was going to be. I’ve read a few books of economics – called things like ‘Filthy Lucre: Economics for People Who Hate Capitalism’, that end up being books of standard economic theory that essentially end up saying, ‘suck it up, princess, Capitalism is the best!’
Early in this book they quote a mathematician/physicist who challenges Paul Samuelson to “name me one proposition in all of the social sciences which is both true and non-trivial.” Samuelson provides the idea of comparative advantage – where countries should focus upon what they are relatively better at doing and trade for the things they are relatively worse at doing. Samuelson responses is “That this idea is logically true need not be argued before a mathematician; that it is not trivial is attested by the thousands of important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it has been explained to them.”
When I read this I though, oh no, here we go… Other books I’ve read, like Ha-Joon Chang’s Bad Samaritans, make it pretty clear that comparative advantage is only ‘kinda true’ and only remain true as long as things don’t change. So, I was expecting this book to rave about the benefits of free trade and how properly functioning markets allocate scarce resources in the most efficient and effective manner and… you know the drill, standard economic theory. But when it didn’t do this I began paying much more attention.
They repeatedly make the point that the measurement of the benefits of free trade are never as easy to arrive at as is generally assumed, or as asserted by those who promote the benefits as if they were immediately apparent. The authors are certainly not opposed to free trade, it is just that they have this crazy idea that if you are going to assert something, maybe it would be nice if the facts on the ground matched the theory you were proposing. They show that for many people this isn’t the case.
I’ve spent a lot of time in this review so far on comparative advantage, and I’m going to spend more time on it too, but I need to tell you first what this book is really about. This book is about things being sticky. It is about people being sticky to the place where they’ve lived much of their lives. It’s about industries being sticky (and continuing to operate) even as they become less and less profitable. It is about our ideas and stereotypes being sticky regardless of the ‘facts on the ground’. You might be wondering why we have moved from comparative advantage to sticky humans. Well, that is what this book is really about. The reason why many of the standard economic theories that are often taken for granted as self-evidently true by economists come unstuck due to the stickiness of humans.
Let’s have another quick look at comparative advantage. The idea is that if you have two countries it is best that they trade. This is because they can both focus on what they are relatively best at. So, if two nations start to trade, even if one of them is better at everything than the other nation is, it would still be better for one of them to focus on producing what they are particularly good at – say, making cars – and leaving the other to do whatever it is that they are best at doing, even if the first nation was really better at doing that too. The reason is that with them both focused on what they are most highly productive at producing, together they produce more than they could have done separately – and that makes them both wealthier and since wealth and happiness are identical in economics, everyone is better off – given there is now more stuff around since they were producing it together, than there would have been if they had continued producing everything for themselves, including the stuff they are less productive at producing.
On one level is really is obviously true. The problem is that economics isn’t mathematics – and so appealing to mathematical logic is part of the standard economics three card trick and the thing that can make people feel like they have been played. As other books explain in even more detail than is done here – comparative advantage has been used by powerful nations to impoverish smaller nations for a very long time.
The complicating factor this book brings into the equation is that comparative advantage would imply that nations that are producing cars and trucks and plane and trains before they started to trade, but were best at producing planes, should allow some other nation to produce cars and let them focus on that while the first nation focuses on producing planes.
But the problem is that that rarely happens in a nice and smooth way. You know, China moving into manufacturing made a lot of jobs in the US disappear. Comparative advantage meant that a lot of other jobs were created in the US too. But rarely were those jobs in the same places that had lost them. The people in the places that once made many of the things that are now being made in China, in a perfectly rational, market driven society, would have moved to where the jobs were. The problem is that people are sticky. They have family and friends who live in Albuquerque, and they might not know anyone at all in Pasadena. So, even if the jobs are now in Pasadena, the people are likely to remain in Albuquerque just the same.
This was compounded by the global financial crisis, by the way – something not mentioned in the book, but something I read about a while ago. If you were paying off a mortgage before the crash happened, you might have decided to continue paying off your mortgage, despite your property no longer being worth what it was before the crash. The reason being that to sell your house would mean you will realise your loses. But that also means your house has become a chain preventing you from moving. If you bought your house for $500,000 but after the crash it is now worth $150,000 and you’ve paid $200,000 of your mortgage, selling your house now will leave you $150,000 in debt. How do you move to Pasadena and start a new life and buy a new house, with that much debt? You are stuck.
There are many, many ways to get stuck – in fact, there is an opportunity here for 3M to be able to double its market share if it can shift into these markets. The problem is that being stuck actively works against many of the standard theories about how economies work and therefore the kinds of advice that economists are likely to give based on their best economic theories.
Recognising stickiness should help create theories that better match real world situations and therefore help to mitigate the impacts of change on those who invariably suffer the most from those changes. But most economic theories seem to do more to help the rich remain rich, so, I'm not expecting anything along the lines proposed in this book eventuating any time soon.
I liked this book – I hadn’t heard some of the ideas before discussed here before and, as a curious outsider to economics, they made sense to me in ways other economic ideas don’t always. I've forgotten who recommended this to me or where - and it was recently too, which is a bit embarrassing, but thank you.
I'm not sure why I had such a hard time finishing this one. It wasn't bad and I think it talked about a lot of good thing, things I agree with but I just had so much trouble wanting to read it. I do think it highlighted a lot of issues I personally have with the way economists talk or beliefs they hold which was great. I also liked knowing more about policy in other countries outside of the US. I think I've just heard or read a lot of similar things before so that's why I felt less into it. I would recommend it to someone interested in more progressive economic policy though.
This book is written by a husband and wife team who just won the Nobel Prize in Economics.
The book is well written and researched. In fact, it is surprisingly easy to read and understand for a lay person. The authors take a global approach to the subject. What impressed me was the fact they actually did research and analyzed data to find out what worked or not. They examined the most crucial issues the world faces such as migration, trade wars, inequality and climate change. They said “the book’s urgent task is to emphasize that there are no iron laws of economics keeping us from building a more humane world.” I was impressed with their methodical deconstruction of fake facts. I found this book most interesting and highly recommend it.
I read this as an audiobook downloaded from Audible. I am going to buy a hardback copy to keep as a reference book. The book is fourteen hours and forty-five minutes. James Lurie does a good job narrating the book. Lurie is an actor, voice-over artist and a well-known audiobook narrator.
Economics is too important to be left to economists.
After listening to a series of lectures on introductory economics, I was struck by the degree to which the basic logic of supply and demand was used to make sweeping pronouncements about human behavior and economic policy. The lecturer, starting from the premise that supply and demand is inexorable, would rule out certain policies as working against the market, while promoting those he considered ‘market-friendly.’ But rarely did he stop to actually examine a case study to see how these theories played out, leaving me with the impression of a wholly a priori logic.
The central thrust of this book is that a priori logic cannot be trusted. The economy is complex and unpredictable, so the best way to understand it is through historical case studies and randomized control trials. The authors find that, when we examine the economy in such a way, many of our intuitions about how the it works or will respond to certain policies are wrong. Indeed, though this could hardly be called a revolutionary book—its tone is engaging but mostly academic—the two authors, Banerjee and Duflo, reach quite heterodox conclusions.
One basic economic argument used against permissive immigration policies is that the increased supply of cheap labor will inevitably drive down wages, thus hurting native workers. The logic is simple but it does not hold up under the evidence. In case study after case study, immigration is shown to be either economically neutral or beneficial to native workers. Indeed, ironically—and contrary to what Trump and his ilk may say—low-skill immigrants are better for native workers than highly skilled ones, because they often take jobs that native workers do not want—jobs requiring little communication and much labor. Native workers may even benefit by being promoted to managerial roles. A multilingual immigrant doctor actually competes more directly with native workers than a monolingual immigrant fruit picker.
Perhaps you can see that the above supply and demand argument against immigration is simplistic, since immigrants, apart from increasing the labor supply, also increase demand for goods. Indeed, most professional economists are decidedly in favor of migration. Workers have much to gain from moving to where their skills will be most highly rewarded; and businesses would gain from having good workers. But here the economists’ logic is shown to have its own flaw. Real workers are actually quite averse to migration. Banerjee and Duflo show that, even when a better job may just require move from the country to the city, most will simply not go. There is a large amount of inertia built into real people’s lives—the pull of family, friends, and familiarity—which works against even obviously beneficial moves.
This is not the only way that the real economy is (in economic parlance) ‘sticky.’ Though economists imagine a world of workers ready to move and re-train, of companies willing to fire and hire, banks that drop bad investments and jump on promising new ones, firms willing to relocate to new countries with cheaper labor, new businesses popping up and inefficient ones disappearing—in a word, a dynamic world governed by shifting supply and demand—the real world is consistently stickier than this logic suggests. This seems particularly true in the developing world—the authors’ main area of study—where they found that efficient and inefficient businesses coexisted, where bad-selling product lines were retained, where banks merely rubber stamped loan applications from existing clients, and where people do not migrate for work, or even take the work that is available locally.
Inhabitants of planet earth will likely not be surprised by all this. But the upshot, the authors argue, is that free trade does not deliver all that it promises. Now, the logic of free trade is simple and compelling, grounded in the law of Comparative Advantage put forward by David Ricardo. Simply put, this law states that we all will benefit from trade, since we can all specialize in what we are comparatively better at doing.
But the logic has not exactly played out as hoped. Though touted as a way of propelling developing nations out of poverty, in practice free trade policies have a mixed record. The authors use the example of India, which transitioned from a highly-regulated economy with high tariffs to a free market with low tariffs in the 1990s. The result of this transition was hardly the economic wonder that some economists could have predicted. In many places, wages actually went down rather than up, and in subsequent years much of the economic growth has simply gone to the country’s rich. This is not to say that the results of economic liberalization were all bad, only that it was hardly the panacea that free-market advocates promised.
The consequences for rich nations, like the United States, have also been mixed. While most economic transitions involve winners and losers, the shock of free trade has benefited those who were already ‘winning,’ and hurt those who were already ‘losing.’ In other words, while the big cities full of college-educated workers have grown richer, the arrival of cheap goods—mostly from China—has ravaged many blue-collar communities.
Admittedly, the theory of Comparative Advantage does predict that free trade will temporarily hurt some workers who are forced to compete with cheaper goods from abroad. But the belief in economic adaptability (not to mention the political will to help assuage the problem) was overly optimistic.
Even when jobs disappear, workers do not move. Many simply go on disability and leave the workforce entirely. In short, workers are sticky. Not only that, but the United States has been very bad at redistributing the gains of free trade in the form of worker retraining and extended unemployment. No wonder that many in the country are skeptical of the benefits. However, the authors are careful to note that the solution to this problem is not to impose new tariffs on China. This will only create further economic harm in other sectors (like agriculture) without remedying the harm already done. What is needed, the authors argue, are generous government programs to either re-train displaced workers, or to subsidize industries that are being driven out of business.
This leads us to the longest and most theoretical chapter in this book, that on growth. The argument is fairly dry but the conclusion the authors reach is striking: we do not know what makes economies grow. The greatest years of economic growth were between the end of WWII and the 1970s. This was also a time dominated by Keynesian economics, which led many to give Keynes the credit for this economic miracle. But the magic wore off with the coming of stagflation, which the Keynesian seemed powerless to stave off. This crisis brought the managed economy into discredit, and ushered in the neoliberal revolution, where deregulation, lower taxation, and free trade were seen as the best tools to rejuvenate the economy. Unfortunately, that did not work, either, and growth has never picked up to pre 1970s levels.
Instead, what has grown since the neoliberal turn has been inequality. Rather than stimulate the economy into mad activity, these policies have merely directed what modest economic growth there has been to the much-maligned top 1%. And their political influence has grown right along with their fortunes, which only reinforces the government’s tendency to embrace these sorts of ‘business-friendly’ policies.
As usual, the economic logic used to argue in favor of these policies—that lower taxes on the rich will spur greater activity—is supported by a priori logic rather than actual evidence. But the evidence does not bear it out. People work just as hard whether they are being taxed at 30% or 70%, or not at all, as demonstrated by a series of tax holidays in Switzerland. The notion that high salaries reflect employee value (which supply and demand would predict) is also not supported, as demonstrated by the remarkably high wages paid to those who manage stock portfolios, which consistently underperform against index funds—meaning that the wages are essentially a rent for holding onto money. (And since the high salaries in finance influence salary negotiations in other industries, this increases salaries across the board.)
A strange picture emerges from all this, a picture of an economic policy—at least in the United States—that is entirely divorced from reality. We wring our hands about immigration at a time when immigration is not going up, and even though immigrants pose no credible economic or cultural threat. We argue about tariffs but not about how to actually help those hurt by free trade policies. We cut taxes and deregulate businesses in the name of growth that never appears. Meanwhile, automation is likely to make many of these problems that much worse, and we persist in putting off any action related to the looming climate crisis.
The current pandemic—and concomitant economic crisis—has only put this magical thinking into high relief. Perhaps the best thing to call it is free-market fundamentalism: the belief that the economy, acting on its own, will sort out all of our problems—from poverty to pandemic—without any government aid. Strangely, it is a faith held most ardently by those who see the least evidence for it: people who have been hit by the economic dislocation of free trade. Indeed, at just the time when inequality is rising, we have embraced a kind of social Darwinism that treats the economic pecking order as a perfect reflection of personal merit. This mentality, resting upon the assumption of an imagined economic mobility (which is even lower in the US than in the European Union), justifies both extreme poverty and extreme wealth, since both are ‘deserved.’ To the extent that anyone is held responsible for the situations, it is either outsiders like immigrants or minorities, or the government—not the wealthy.
As Manny has suggested, the situation is rather reminiscent of the USSR in its final years. In both cases we have an economic philosophy based on a priori logic rather than evidence, and believed on the same grounds. As this philosophy fails to deliver, the country’s elites still do not publicly renounce it, but instead only increase their displays of fervor. Rather, entirely irrelevant factors—immigrants, minorities, nefarious citizens—are used to explain the lack of prosperity. Meanwhile, the rich line their already deep pockets while spouting the old egalitarian slogans. The result is a society gripped by nihilism, wherein the old ideals become barely-disguised lies by corrupt and incompetent leaders, and anger and hopelessness descend upon a country that senses it is going in the wrong direction but does not understand why.
This may seem rather hyperbolic. But when you consider how bad things have gotten in the United States in the short time since the publication of this book, when it was already quite bad, then perhaps you can see the justification.
If our economic logic is often misguided, and our policies either useless or worse, what do the authors suggest? Here is where I thought that the book was mostly lacking. Banerjee and Duflo are extremely heterodox when criticizing conventional economics, but are not nearly so bold in proposing solutions. Their general point, however, is that we ought to shift our focus away from trying to grow the economy—since we do not know how to do that anyway—and towards most justly distributing the resources we have now. High tax rates on the rich will help curb inequality without reducing effective incentives. Coordinated efforts between countries can help to reduce tax dodging, and enforcing anti-trust legislation will help curb corporate power.
The authors have a fairly nuanced view of basic income. They think that basic income schemes work well in developing countries, where the poorest are mostly working a variety of temporary or seasonal jobs. But they do not think UBI would work in developed countries, because people have come to rely on jobs not only for income but for structure and even meaning in their lives. In studies, people who stop working do not tend to increase time socializing, or volunteering, or on hobbies; instead, most people end up just watching a lot of television—which does not increase happiness or well-being. This is why the authors prefer significantly stronger unemployment support—helping workers to retrain and relocate.
This seemed somewhat timid to me. But perhaps it is misguided to seek bold, sweeping solutions from authors who insist on hewing to trial, experiment, and evidence. Hard-headed economists, the authors do not promise miracles. Yet if you are looking for a probing and insightful look at many of our current economic woes—now only exacerbated by the coronavirus recession—then this book is quite an excellent place to start. The most pressing point is that our economical problems have political solutions. As usual, the only thing we need is the political will to start acting.
Good Economics for Hard Times? More like Bad Dogmas for a Boring Read.
This book is more of a political pamphlet than a serious economic analysis of the important issues. The authors are both radical left-wingers (they don't even try to hide it, to their credit), whose answer to every problem in the world is "more government would fix it".
The book is full of sexism, racism and anti-science comments. In both the preface and chapters 2, 3 and 4 they describe Trump supporters as ignorant racists that are good at heart, and just need a bit of government intervention to open their eyes. In chapter 5 they argue that economic growth shouldn't be the goal for policymakers, and then in the next chapter they say that economic growth is bad for the environment anyways, so who wants that?
In chapter 7 the authors try to make an argument (an extremely weak, idiotic argument) against technological progress, defending the luddites that destroyed machines in the Victorian era because they were "killing jobs". And then, in my favourite part of the book, the authors claim on chapter 8 that the reality that "government is corrupt and incompetent" is a fact of life that we should just accept, that the fight against corruption is an "unwarranted obsession" and that we should just shut up and embrace our saviour the government as the only way to live in a dignified way.
Why, you might be asking, would a couple of Nobel-prize winners defend corruption as an inescapable truth of the world? Well, it's basically because admitting that governments are corrupt goes against the idea they promote throughout the whole book: that governments are a noble force for good, and all the problems in the world would be solved if we just let them, alongside a bunch of well-intentioned bureaucrats, design the right policies for every issue (benign policies such as "destroying the super rich", as proposed in chapter 7). It worked well in the USSR, Cambodia, North Korea and Venezuela, am I right?
The most interesting part of the whole read (quite a boring and dense read, by the way) is that the authors do not seem to find the irony in the fact that, even though they argue for an "evidence-based approach", they are completely blind to all the historical evidence against their preferred statist and collectivist recipes. In summary, if you want to read a freedom-hating hard-left socialist wish list, you'll be more entertained checking Bernie Sanders' Twitter than reading this.
Government good, Orange Man Bad. Where is my Nobel?
First I need to get this out of my system: incredibly funny to me that it’s taken us this long before the Nobel prize winners for economics of the year were two mfers who simply asked “what if we tried being nice to the poor?”
This book is intriguing in its writing, it gets props on that for sure. It’s fun to read and interesting despite what its ideas might contain.
As for the economics, there’s a lot of Keynesian revivalism because two ding dong economists finally figured out that 40 years of stagnating welfare and exploding inequality isn’t good for the world among their opposing and disagreeing ding dong economist friends. Capitalists who find soft ways of analysing issues Marxists have been noticing for years is always irritating, especially because even in moments where Banerjee and Duflo are trying to sound sympathetic they kinda slip and forget some events are not a moment of pride we should bask in. Simply because policy makers and economists pushed for the kinder approaches to poor people AFTER heavily considering brutalising them out of indifference doesn’t mean these monsters deserve a medal for good behaviour.
With all that being said, the two of them are trying something quite interesting, none of their suggestions go as far left as Id like but they are grounded in how feasibly we can introduce ‘radically’ different ideas without being immediately shut down by the billionaires and conservative leaders that have a stronghold on the economy. Their arguments are grounded in tons of positive experiments on the raising of welfare and how it generates better growth, and for capitalists they aren’t afraid to tackle the debunked myth that billionaires raising their income and wealth through tax cuts every year will magically raise growth.
So yeah, on the one hand it’s this awful irony of having to read economists finally get a lightbulb moment and figure out that dismissing the poor and their needs is actually not good and nice, but on the other you can tell Banerjee and Duflo care and they’re really working to make their proposals and ideas as accessible and attainable as possible so that the well being of the poor can improve ASAP.
Highly disagree with this book but its heart is in the right place and this was easily the most engaging thing I’ve read this year.
Aristotle warned us against expecting more precision from a subject than it allows. As Aristotle wrote, “for it is the mark of an educated mind to seek only so much exactness in each type of inquiry as may be allowed by the nature of the subject-matter.”
The idea that economics commands the same level of precision as physics has led to the perpetuation of several misconceptions and dogmas. That the authors fully understand this is a testament to the book. The authors are not dogmatic, nor are they apologists for any particular ideology; in each chapter, they summarize what the latest economic research tells us, and, more importantly, what it does not or cannot establish with any degree of certainty.
Like any book with complex arguments and subtle distinctions, the criticism will come from all sides. While the authors undoubtedly lean left, there will be those who feel they don’t lean left far enough, while those on the right are destined to label the book as “socialist propaganda.” The truth, of course, is somewhere in between, as the authors summarize the latest economic research on each topic to arrive at intellectually honest interpretations of the data, making this book a model for how economics should be taught and studied.
The authors don’t pretend to be all-knowing, but if you think that tax cuts for the wealthy stimulates growth, for example, you have more than 40 years of contradictory research and statistics to contend with. Likewise for immigration as the cause of depressed local wages or the reliance on the “free market” for efficient (or desirable) outcomes. The research just does not support these common beliefs or the simplistic theory that holds them up. The real world acts very differently than the economic models predict, so if you’re interested in actual results and statistics—rather than what economic theories tell us should happen—then this book is for you.
So what is the way forward? No one knows for sure, but we do know that sacrificing the common good in the name of economic growth is almost always misguided. In addition to not knowing what stimulates growth in the first place, economic growth (as measured by GDP) means little to most of us if all the growth goes to the super-wealthy. Perhaps the job of the government is not to identify the factors of economic growth so much as to make the standard of living higher for the average person.
some key takeaways: 1)influx of immigration is more likely to depress opportunities for high-skilled native workers than low-skilled native workers 2)low-skilled immigration doesn't drive down low-skilled wages because they produce accompanying effect of increase in demand in low-skilled labor (because they also buy stuff and spend money in their new host country) 3) free trade is good, but only if beneficiaries of comparative advantage within society (usually those possessing capital in rich country) are taxed appropriately to redistribute benefits to job losers within country 4) free trade isn't so simply 'good' because theory is marred by real-life phenomena of sticky labor market and need of newcomer suppliers to cultivate their reputation in the market (such as new-entry vendors in the Amazon marketplace) 5) free trade gains are positive but small for a huge market like the US 6) norms can reinforce poor behavior in an irrational feedback loop as people fear the consequences of ostracism despite recognizing the senselessness of the norm (see the behavior of Republicans still backing Trump's claims of electoral fraud, and behavior of people who fear intermarriage with members outside of their own caste) 7) norms can oppress the weakest members of a community and uphold abusive power structures in the name of community cohesion 8)Benjamin Franklin ("the most ignorant stupid sort of their own nation") and Jefferson ("discourage their settling together in large masses") hated German immigration 9) we avoid facing our own prejudices by selecting against information that makes us confront our biases 10) there are economic spillover effects when highly educated people with skills and bubbling ideas are clustered together in the same city 11) the general consensus among most economists is that there is no relationship between tax cut levels and the growth rate of the economy for the US case, circa 1960-2000-- which should defeat the long-held notion that tax cuts are necessary to spur innovation 12) "tax cuts benefitting the top 10 percent produce no significant growth in employment and income, whereas tax cuts for the bottom 90 percent do" 13) again for the people at the back: no data-based economist 'seriously believes' that tax cuts for the wealthiest lead to durable economic growth 14) Permanent monopolies, such as Amazon, block innovation and economic growth because of barriers to entry for more competitive firms and lack of incentive for the behemoth to innovate 15) there is no surefire recipe for economic growth 16) there is no proof that the internet technologies usher new growth 17) carbon tax should be redirected as lump-sum compensation to lower-income people to help them become amenable to the idea of changed energy habits 18) "we suspect the current drive towards replacing human actions with robots cannot be prevented from taking a serious toll on the already dwindling stock of desirable jobs for low-skilled workers, it could lead to a rise in unemployment or multiplication of poorly paid, unstable jobs" 19) "the evolution of inequality is not the byproduct of technological changes we do not control, but the result of policy decisions" 20) "it seems to us that high marginal income tax rates, applied only to very high incomes, are a perfectly sensible way to limit to the explosion of top income inequality", such that financiers would still migrate to firms that pay them the highest, and talented non-financiers would be encouraged to allocate their gifts and skills to less lucrative but more socially useful professions. However, this will lead people to do tax evasion 21) wealth tax is essentially a tax on investment income, because passive wealth becomes used as investment
I totally enjoyed Banerjee’s Poor Economics, and it was no surprise he was honored with the Nobel price in economics. Here he shared good economics answers for tough questions.
1. Migration. Evidence: migrants do not lower the wages of the poor, because they are also consumers thus increasing both the supply and demand for work. Solution: we should encourage migration.
2. Trade: Evidence: gains from international trade is only 2.5% GDP for big and self sufficient countries like America, but matters much more for small countries. Trade slows down poverty reduction in poor countries, and also make the less skilled in rich countries poorer! And people who lost their jobs, town and dignity find moving difficult, and become angry and xenophobic. However, trade makes the world a culturally richer place. Tariffs will not help. Solution: Trade Adjustment Assistance, retrain people displaced into new jobs, and subsidise jobs for firms affected by trade.
3. Preference & Discrimination: Evidence: hard to change. Social media makes it worse. Exposure makes it better. Solution: mix the people together, build housing for the poor everywhere, and allow poor children to study outside their district.
4. Growth: Evidence: nobody knows how it happens! Well, except for tax breaks and good infrastructure, that really helps one region but at the expense of others, like Singapore (ahem).
5. Climate change: Evidence: rich countries pumped out CO2, poor countries suffer more. Solution: use less energy, develop clean energy, tax the rich countries to subsidise the poor countries for the harm. I think it will be very touch from the Yellow Vest protest in France (taxing the poor for some elite’s ideal).
7. Robots taking jobs: Evidence: very real. We will have many people with nothing to do, and a small elite doing all the fun work. Solution: Reduce automation. Increase top tax rate back to 70%, shuts down tax haven.
8. Government: Evidence: we need big government to do wealth transfer. But the rich laboured to drain the swamp and they are succeeding. Let the brightest join the government; it is not more corrupt than profit-conscious private companies. But the people with less government support blamed migrants and foreigners, voting in nationalists like Trump who further drains the swamp and benefit the rich. Solution: none
8. Universal Basic Income: Evidence: good for receivers making them healthier and more schooling, but not richer. Also too expensive. People will not work less. Solution: increase the top tax rate. Subsidise childcare and education. Help people move to where jobs are. Respect and involve the needy. Subsidise long term (10 years) for older workers whose jobs have been displaced.
This book have evidence based solutions to all the hard problems. A solid 5 stars.
Confirming to me that economics is an entirely uncertain science.
I definitely enjoyed this but have a lot of reservations about the certainty of literally anything that was said in these pages. This is a book unabashedly written by two economists with a liberal view about how to improve wealth gap and poverty. The is a very subjective analysis of the reasons behind declining economic systems and the poverty that they perpetrate. I don't necessarily disagree with anything said, but as someone who doesn't know much about economics, I don't feel like I got the most objective take on things. And that is kind of the point they make: economics is a slippery science and always has been. Over and over again, you get a little data in the form of RCTs peppered over enormously subjective opinions and expert consensus. Economists are used by power structure to justify whatever scheme they want to implement with mostly disastrous consequences (ahem... neoliberalism).
At any rate, from this book, you'll learn a little about the mostly net negative effects of trade wars, how Trump tariffs on China mostly trade one form of labor loss with another (steel workers -> farms). You'll learn that economist have no clue about what causes growth and that politicians respond to stagnation usually by blaming exogenous forces (like immigration) that have nothing to do with down turns. Immigration is almost certainly good for economic growth as it injects the market with a young and enthused labor force. The authors touch on the merits and pitfalls of universal basic income (UBI) as well as reinvestment in social programs. The authors clearly endorse the view that a wealth tax, mostly popular by the public, is a good step in the right direction to combat the concentration of wealth and gaping income and wealth gaps. You'll find a lot of Bernie/Warren type policies outlined in these pages. Again, I don't disagree with the authors but this turned out being mostly an echo chamber of liberal policies that will convince no one that is not already convinced.
What I learned most from this book is an appreciation for the distrust that people have in economists. It is by its very nature an uncertain science full of error.
I learned some interesting factual tidbits from this book, which succeeded best at gathering research findings (especially RCTs, the forte of the authors) in one place. However, I ultimately didn't find a lot of the authors' broader conclusions particularly compelling. And, in many places, I think the authors glossed over nuance too quickly/too unthinkingly liberally.
I agreed with the authors' opening chapter, which makes the point that policy/economics matters and that paying attention to research results is a good way to make informed choices. Ho-hum.
The first substantive chapter on immigration underwhelmed me. It well-documented the research that low-skilled immigrants don't much hurt low-skilled natives (if at all). It treated the contest between high-skilled immigrants and high-skilled natives too cursorily. Then it spent a bunch of time making the strange argument that border protections don't actually keep so many immigrants out of rich countries like the US because, according to some RCTs, lots of poor Bangladeshis don't leave home when incentivized to do so. Huh?
The second chapter on trade didn't teach me much. We know that it can really screw up some neighborhoods and states. But it didn't focus much on the positive gains of trade. I agreed with the well-trod proposal to increase TAA a lot.
The chapter on how to create economic growth ended with throwing up their hands, which is a fair conclusion. Interesting research on how you can't really use any of the major macro indicators to predict whether a developing country will grow! Also made fair point that the Asian Tiger approach to growth often doesn't work because government doesn't choose industries well. Related good point was that perhaps best way rto understand that experience was that those countries had lots of educated workers and the government oriented them the right way (i.e., reduced misallocated human capital resources). Thus it's harder for a less educated developing country today to pull that off.
The chapter on inequality made the good point that the problem with job losses isn't just financial, it's also to one's sense of self-worth. Also made the good point that UBI is probably unaffordable. Didn't convince me on paying workers to stay in their redundant jobs.
Overall, I liked but didn't love this book because it brought together some interesting research but was often either too cursory or too ideological/uncritical.
Democracy can live with dissent as long as there is respect on both sides. But respect demands some understanding. The space for such conversations seems to be shrinking, there seems to be a 'tribalization' of views not just in politics but also about what the main social problems are and what to about them. Economists are more like plumbers; we solve problems with a combination of intuition grounded in science, some guesswork aided by experience, and a bunch of pure trial and error. To make progress, we have to constantly go back to the facts, acknowledge our errors and move on.
Immigrants may not produce growth for their new communities unless they spend their earnings there; if the money is repatriated, the economic benefits of migration are lost to the host community. One very big problem with the supply-demand analysis applied to immigration is that an influx of migrants increases the demand for labor at the same time it increases the supply of laborers. This is one reason why wages do not go down when there are more migrants. The reason immigration is so politically explosive is the idea that the numbers of would-be immigrants are overwhelming, that there is a flood of strangers, a horde of foreigners, a cacophony of alien languages and customs waiting to pour over our pristine monocultural borders.
Migration is a plunge into the unknown, which may make people particularly reluctant to undertake it, even if they could in principle save up to cover the various financial contingencies involved. Sometime after 1990, on average rich states no longer attract more people. High skilled workers continue to move from poor states to rich states but now low-skilled workers, to the extent they still more seem to be moving in the opposite direction. The real immigration crisis is not that there is too much international migration. Rather the real problem is that people are often unable or unwilling to move, within and outside their country of birth, to take advantage of economic opportunities.
Encouraging migration both internal and external should be indeed by a policy priority but that the right way to do it should be not by forcing people or distorting economic incentives, as has been done in the past but by removing some of the key obstacles. In the last three decades, many low to middle income countries have opened up to trade. The wages of the low-skilled workers, who are abundant in these countries (and should therefore have been helped), fell behind relative to those of their higher skilled or better-educated counterparts. Between 1985 and 2000 Mexico, Colombia, Brazil, India, Argentina and Chile all opened up to trade by unilaterally cutting their tariffs across the board.
Over the same time period, inequality increased in all those countries, and the timing of these increases seem to connect them to the trade liberalization episodes. The best case scenario in this world of fragile and interconnected reputations is often an 'individual cluster', a concentration of firms in the same industry in one location, all benefitting from the reputation associated with the cluster. The three main lessons that we can lean from the assumption that there are large aggregate gains from trade are: 1. The gains of international trade are fairly small for a large economy 2. While the gains are potentially much larger for smaller and poorer countries, there is no magic bullet 3. The redistribution of gains from trade has proven extremely tricky, and people negatively affected by trade have suffered and are still suffering, a great deal
The fact that each individual decision is rational does not make the outcome desirable. Herd behavior generates informational cascades: the information on which the first people base their decision will have an outsized influence on what all the others believe. Self discrimination is often self-reinforcing; people perform differently when they are reminded of their group identity, which makes them doubt themselves even more. Prejudice is often a defensive reaction to the many things we feel are going wrong in the world, our economic travails, and a sense that we are no longer respected or valued. Contact hypothesis - the idea that under appropriate conditions, interpersonal contact is one of the most effective ways to reduce prejudice. By spending time with others, we learn to understand and appreciate them and as a result of the new appreciation and understanding, prejudices diminish.
According to Solow's Model, growth is likely to slow down after a phase of fast growth that follows a dramatic transformation, once the economy is back on the balanced growth path. Countries scarce in capital and relatively abundant in labor, like most poor countries, will grow faster because they have not yet reached their balanced growth path. They can still grow by improving the balance between their labor and capital. All else being the same, poorer countries will catch up with their rich counterparts. The growth rate of GDP per head among the relatively rich countries, once the economy reaches balanced growth, may not be very different. Problem with these innovations which are designed to help poor people is that they take place in a void, insufficiently connected to the lives they wish to change.
The core ideas are often clever and it remains possible that one day they will click, but it is hard to place a lot of faith in this prospect. The policy makers worldwide need to focus on the well-being of the poorest, offers the possibility of transforming millions of lives much more profoundly than by finding a recipe to increase growth from 2% to 2.3% in the rich countries. Inequality has risen dramatically in recent years, with searing consequences for societies across the world. There are two reasons why wealth taxes are so politically difficult: 1. Because of effective lobbying, high networth individuals finance the campaigns of politicians on the left and on the right and few are in favor of wealth taxation even when they are otherwise quite liberal 2. It is easy to avoid the taxes, legally or not, particularly in small European countries where people can move or pack their wealth aboard. This gives rise to a race to the bottom on tax rates.
The portrayal of bureaucrats and politicians as either bumbling idiots or corrupt sleazeballs for which economists are partly responsible is deeply damaging: 1. It prompts a knee-jerk reaction against all proposals to expand the government, even when the government is clearly needed 2. It affects who wants to work for the government. Attracting qualified people is essential to a well-functioning government. If only the less able work in government, we get an ineffectual government no one of talent would want to join. The image of the government also affects the honesty of those who want to work for it 3. It is assumed most people in government are either venal or lazy (or both) it makes sense to try to remove all decision making power from them (and thereby banish all creativity and all creative people) 4. Perhaps most importantly the mantra that government is corrupt and incompetent has produced the kind of jaded citizenry who can react to news of shameless corruption among its elected leaders with a shrug from Washington DC to Jerusalem to Moscow. They basically have learned to expect nothing else, and stop paying attention
Each and every transition can and should be a chance for government to signal its empathy for the workers who have to suffer. Changing careers and moving are both difficult, but they are also an opportunity for the economy and for individuals to find the best match between talent and occupation.
It's one of those interesting twists of fate that Banerjee and Duflo won the Nobel Prize in economics (together with Michael Kremer) a few days after having published their second book targeting a non-specialist audience. Professors Banerjee, Duflo and Kremer won their prize “for their experimental approach to alleviating global poverty”. In short, defying the idea that economics is not suited for the experimental approach, they set up randomized controlled trials (such as is the golden standard in medicine) to test whether specific policy interventions would work. For instance, what is the impact of mosquito nets on malaria prevention? Are people more likely to use the nets when they are provided for free or when the beneficiaries have to pay for them? (It has been estimated that insecticide treated net distribution averted 450 million malaria cases between 2000 and 2015 - one of the best examples of evidence based policy ever. ) Through this rigorous approach to testing, they have been able to show that some policy proposals don't work, or don't work as intended. Banerjee and Duflo had already summarized their work in "Poor economics", which had become an unlikely bestseller a few years ago. Their new book has a different focus: its objective is to show how "good" economics can be used to understand real life problems, including problems most people would not associate with economics: migration, discrimination, pollution, human dignity... There are several reasons why this book is a must read, even if (or rather especially if) you are skeptical of economic approaches to policy. First, of all, Banerjee and Duflo show that state of the art of economics is light-years away from the cliches most people have of the profession, both in terms of methodology used and in terms of the topics that are studied. Some methodological issues are relevant for anyone who is thinking about policy evaluation. Second, all the topics studies are really burning issues. By reading this book, you will not just learn a lot about economic analysis, but also develop new perspectives. For instance, on migration: (a) there is much less migration going on than people think (b) there is no conclusive evidence that migration hurts native low income workers (c) if financial motives were key, we would see much more migration Consider also the second chapter, on trade. I have seen some people claiming that this chapter debunks one of the cherished sacred cows of economists, free trade. This is a very strange interpretation of what the chapter actually says. So maybe a short summary of some key points the authors make: (a) There is a quasi consensus among economists that free trade is good, largely because the theoretical argument is really compelling. (b) Empirical evidence on the effects of trade liberalization is very difficult to interpret when it is based on cross country comparisons; when countries open up to trade, other policies also change, and it is very difficult to disentangle the effects of each policy separately. Also, it is possible that the decision to open up is due to external factors that are good for growth anyway. (c) One pioneering study in India in the 1990s showed poverty reduction was slower in districts that had opened more to trade - it didn't increase either, so this does not refute the fundamental trade theorems anyway, but it is puzzling. One key reason was actually a lack of mobility of workers between firms, which is was allegedly due to restrictive laws on hiring and firing. This may seem to suggest that trade liberalization only works if labor laws become more liberal as well - except that later studies have observed that this lack of mobility is also prevalent in the US, where there are very few restrictions on hiring and firing. So the lack of mobility of workers between sectors and regions is a key reason why the benefits of trade are not fully realized - and this is not always due to restrictive regulations. (d) The argument for free trade is based on the result that the gains for the winners is larger than the losses for the losers, and thus that the winners can compensate the losers. However, in practice, programs to help the losers are often underfunded, especially given that, as a result of industry clustering, trade shocks can have strong regional effects, for instance, completely destroy an industry that is regionally concentrated. (e) In large countries such as the US, the gains to trade are not that large compared to GDP, and, according to Banerjee and Duflo, this means we can not be too confident that the advantages of further trade opening outweigh the social and political costs in a world where workers are not fully mobile and/or compensated after a trade shock. However, it is also pretty clear that for small countries, the gains from trade are very large indeed. So, while Banerjee and Duflo do indeed question the idea that opening to trade is a no-brainer, their analysis does not at any stage imply that protectionism is a good idea. Quite on the contrary, they state clearly that protectionist measures create a new trade shock, which will also result in the creation of "clusters of losers". Their analysis is thus more complicated than some people would like it to be. This is also one of the great merits of the books. While the heart of the authors clearly lies left-of-the-center, they are wary of any easy solutions - although I am pretty sure ideologically motivated people will be able to read the book selectively enough to think (and claim on social media) they have been validated by the most recent Nobel prize winners. But every reader should keep the final warning of the book in mind: "The only recourse we have against bad ideas is to be vigilant, resist the seduction of "obvious", be skeptical of promised miracles, question the evidence, be patient with complexity & honest about what we know & what we can know". Everyone should really print this message and hang it in his office. Does this mean the book has no faults? No. Not all chapters in the book have the same level of coherence, and especially the chapter on environmental issues feels a bit like a hodgepodge of topics without the clear vision that underlies the chapters that touch on the core of the authors' professional activities (but this less positive view on this specific chapter is maybe because it is the topic I am most familiar with myself). But this is a minor comment on a book that should be widely read - in the hope that more people will adopt the attitude of its authors.
Laba grāmata par ekonomiku, mikro un makro, atkāpjoties no ierastajiem modeļiem un vispārinājumiem. Autori parāda, kā vajag analizēt ekonomikas problēmas un kādēļ liela daļa no standarta ekonomiku regulējošiem instrumentiem nestrādā reālajā dzīvē. Piemēram, nabagiem var dot naudu pa taisno viņi to nenodzers un neiztērēs smēķos, bet iztērēs paredzētajiem mērķiem.
Much like their previous book, Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty, Good Economics for Hard Times is a fluently structured and eloquently written piece of popular economics. It synthesizes a wide reading of the theoretical and empirical literature. It is full of insights, wide in scope, and moderate in tone. Its policy conclusions straddle the line between economic elitism and populism. On the one hand, the authors respect economic expertise enough to follow its data even where it contradicts the "man on the street." On the other hand, they respect democracy enough to attempt to speak to the "man on the street" in a language that he can understand without condescension, paternalism, and other elitist vices.
The authors argue that while economic science often overreaches and pretends to possess expertise that it does not possess, can nonetheless be used correctly to provide policy relevant guidance on various issues in a way that improves on common sense or established wisdom. Instead of relying on theoretical models of economic actors, they prefer the experimental methodology of careful empirical testing and randomized control trials (RCT's). The book discusses several aspects of economic policy, including free trade, immigration, technological change, social inequality, and welfare redistribution. All the while, it discusses hundreds of studies and offer fair and balanced interpretations of them based on a careful reading of some of the best available evidence.
The book's definition of "good economics" reflects a moderate, centre-left, perspective. The authors advocate for many policies that enjoy widespread consensus support among professional economists. In many ways, a lot of what they write is uncontroversial among the economics profession although a lot of the people still wish to deny the validity of its findings. It is odd that they spend so little time defending the basic integrity of economics against common perceptions. A lot of what they say depends upon technical facts that are hard to explain to a layman. Instead, they prefer to emphasize the populist point that the layman is often right to be skeptical of the economist. I agree - but sometimes the economist is right to be skeptical of the layman! The authors also make occasional nods to radical and heterodox positions such as Universal Basic Income (which they advocate for poor countries but not for the rich) and confiscatory, progressive wealth taxation on the ultra rich (similar to Piketty). These are controversial but not unheard of positions within mainstream economics. Even their "radical" ideas are pretty mainstream. The only exception is their incredible defense of the EU Common Agricultural Policy which most economists think (IMO correctly) has been one of the worst policy disasters of the past half a century.
Their ideological slant, if you can call it that, is most evident when they focus so much on the questions of inequality, the destructive side of capitalism, and the environmental danger of climate change. Even here, however, they mostly reflect a moderate and balanced consensus position. That said, I think they fail to adequately address the undeniable positive impact of free trade and privatization. Despite their negative impact on inequality, free market policies have increased global wealth and the livelihoods of the poor. And when it comes to the 90's-2000's wave of globalization, they suddenly paint the Reagan-Thatcher revolution in uncharacteristically black and white terms. Suddenly, the rhetoric of the book starts sounding more populist and even partisan. This sticks out like a sore thumb since the rest of the rhetoric is so nuanced.
My favourite chapter of the book is the chapter on "Cash and Care." As the name implies, the section focuses on the impact of cash transfers versus in-kind welfare measures on various social indicators. They argue passionately against excessive paternalism and therefore see the value in giving cash directly to poor people. This also explains their partial support for some kind of UBI. At the same time, they argue that cash policies are often not enough to really help poor people. So, they argue that careful "care" policies may be required on top of "cash" policies to overcome market failures and "frictions" (or "transaction costs") that tend to keep poor people stuck in suboptimal positions despite the best efforts to help them. In particular, they think that money is not useful for community building, jobs, meaning, etc... This seems right to me. A mixed approach has been proven to work the best in many studies. However, here too, I wish that the authors would have spent as much time talking about government failures in welfare state governance as they do talking about market failures. How do they expect governments to be able to deliver on their promises? What kind of checks and balances are required to keep care policies within socially beneficial bounds? The presence of widespread government failure is one of the main reasons why many "care" policies have failed in the past and why "cash" policies may still be preferable in most instances - including in rich countries like Scandinavia and the United States. The fact that prevalent market failures prevent cash transfers from reaching an "efficient" outcome does not speak against cash transfers if the efficiency of "care" programs is undermined even more by government failures. No one has yet "proven" the appropriate mix of the two approaches.
Overall, I like the book because it offers reasonable policy advice based on solid evidence. It is moderate and balanced in its analysis (with a handful of exceptions). It leans left-wing but only moderately so. All the policy positions are supported by evidence. There is no doubt that the authors have made a good faith effort to draw warranted conclusions (and only them) from the empirical evidence, even if the evidence remains ambiguous. The methodology of data driven empiricism, which the authors follow, can lead to false conclusions if it overstates the capacity of statistics and RCT's to generate reliable knowledge. To that extent, the authors are leading the science down a potentially wrong or unfruitful path. But even theoretical economics must check its conclusions against empirical evidence to update its priors. Always be ready to follow the evidence.
Esther and Abhijit are couples. They are also the 2019 winners of the Nobel Prize in Economics. In their previous book, Poor Economics, the duo set new outlines for fighting global poverty and help developing countries improve everything from school enrollment to immunisation rates. This current book examines the current global challenges with a broad analysis of available economic research. The authors methodically proffered humane and unambiguous solutions to these crucial problems humanity presently faces. But Esther and Abhijit didn't pretend their recommendations are the absolute or magic wand.
Economists sometimes carried themselves as the reservoirs of answers to humanity's problems. The economics profession has literally ventured into all aspects of man's socio-economic being (e.g., computer economics, healthcare economics, agriculture economics, family economics, to mention a few).
Maynard Keynes proposed an economist must be at once, "mathematician, historian, statements, philosopher… Contemplate the particular in terms of the general, and touch abstract and concrete in the same flight of thought."
But Aristotle had this to say about experts and their education: “For it is the mark of an educated mind to seek only so much exactness in each type of inquiry as may be allowed by the nature of the subject-matter.”
Unfortunately, economists are more or less trained to think along with the admonition of Keynes than with Aristotle. But while economists pride themselves the torchbearers for humanity's crucial problems, their reputation dwindles in the publics' eye.
A 2017 YouGov poll in the UK confirmed economists are the least trusted professionals. In a similar poll conducted in the U.S. a year later, Esther and Abhijit asked ten thousand people; again, just 25 per cent of people trusted economists. Only politicians ranked lower.
How did the opinion of economists, especially on global issues, become least respected by the general public? In part, as the authors argue, the opinion of economists are too detached from those of the public. "This trust deficit is mirrored by the fact that the professional consensus of economists (when it exists) is often systematically different from the views of ordinary citizens."
But more than having answers to issues that are mostly at odds with ordinary citizens, economists are failing to play their role. After the 2008 crash, the Queen queried the Royal Economic Society in a conference: "Why did no one see it coming?"
Perhaps, economists are not empowered to make those predictions. However, because economists fail to raise the alarm for impending economic doom or their predictions not always turns out accurate does not mean economics do not have answers to the crucial global challenges. Economics and economic policy are central to the present global crisis (income inequality, migration, trade wars, climate change, the threat of artificial intelligence (AI) to jobs), This book is an attempt to redefine the role of economists and economic policy as a panacea to the worlds critical problems.
One of the good things about Good Economics in Bad Time is that the arguments are lucid and down to earth. The clarity of the authors' thoughts is exceptional. It's rare to read superbly intelligent economists confessing they don't have answers to, for example, "what causes economic growth".
This book is a really bad attempt to cloak a political hack job and pretend it has some economic basis. The economics is largely anecdotal and only seems to support their conclusions if you hold their political point of view. Their underlying mission seems to be to prove that Trump and Republicans are bad. If that wasn’t their point, they could have written the whole book without taking a shot at Republicans (deplorables) in each and every chapter. Still, their conclusions are not well supported even if you ignore the politics
Good Economics for Hard Times, by Abhijit V. Banerjee and Esther Duflo, is an interesting book on some pressing economic and political issues that the world is facing, and some tentative solutions. The authors discuss immigration, free trade, behavioural economics, declining rates of growth, environmental disaster, AI and technology, government and anti-government, and welfare and wealth inequality. The authors use numerous case studies and RTD's to analyze policy experiments from the US, to India, Ghana, Germany and beyond.
Immigration and its benefits are discussed in detail. The authors are nuanced on this point, stating that unfettered immigration could be damaging, but immigration as a whole has numerous economic benefits. More people means the need for more services, products and jobs in a location, and an influx in immigration does have positive economic benefits in a location. The mentality behind immigration is often negative; economies are doing poorly right now, and populations often blame new immigrants for lack of jobs, or tight cash flows. The authors show that there is no proof that economies are effected by new immigrants. Often issues arising from economic downturns have to do with flows of international trade, and lack of government assistance for those who lose. These "deplorables" as Hilary Clinton nefariously called them, are down and out due to shifts in economics. They are the ones who feel the struggle with new immigrants as a competitive factor. This is not just an issue in the US of course, many nations suffer from these shifts and downturns, which often have negative effects in specific localities, even if the nation as a whole may benefit. Contrary to economics 101 wisdom, workers in effected areas do not move to new areas to pursue work very often. One may struggle with the economic logic here, but the social logic is clear; most people will not uproot there entire lives just because this are tough. One's home, family and identity are often tied to there place of birth or residence - these things are hard to break, and the cold economic logic that states they must is unrealistic. As the authors so eloquently state it, people do not flee when things are rough, they only flee when they have to - "from the mouth of the shark." One may not move due to unemployment, but if your neighbour is out to kill you, or tanks are rolling through y0our neighbourhood, or you are literally starving to death, you might. The other major wave of immigrants that most Western nations get come from the entrepreneurial among us - these are the people who have insatiable ideas, want to explore, and succeed. Most people aren't like this, but if you look at the likes of Steve Jobs, Jeff Bezos, and so forth, these individuals all came from immigrant families - most successful people are, or have gone through similar struggles. As the authors state, hardships can create opportunities. The authors state that immigration is beneficial, and encouraging immigration is important, especially in nations with sluggish growth. To encourage, it will take government investment in areas with sticky economies - those low growth or declining areas where people are struggling, to ensure they are not left behind. Job programs, infrastructure investment, taxation changes and the like are all posited.
The authors go on to discuss trade. This certainly has a beneficial impact on GDP growth and job creation, but the authors note the somewhat justified criticisms leveled at trade. In its current form, unfettered trade does result in declining jobs in the short term, and profits that do not often trickle down to the majority of the population. Free trade creates wealth for the elite, but it is also damaging for wealth equality, the environment, and is disruptive for existing industries. Trade is also not necessarily fair - countries like the United States and the UK in the past champion free trade when they cannot be competed with, but are incentivized to put up tariff barriers to squeeze out competing nations. This is economic imperialism at its core, and shows that the realpolitik behind trade trumps the rosy ideological PR often spouted by economists. Trade can be very beneficial, but must be done fairly. The authors advocate for some solutions, with the caveat that these may not work in locales - policies need to be specifically crafted to suit national needs. One option is promoting exports. This is especially important in developing nations where labour is cheap, but infrastructure is lacking. Building foreign reserves, and improving the climate for trade and business is an important step to receive FDI flows, and nations often need to prove themselves to do so. One is more likely to by an American car than one from Egypt, even though the cars may be of similar quality. The authors discuss interesting programs to put suppliers, manufacturers and the like from poorer countries in touch with retail platforms in other areas. Making carpets from Egypt or t-shirts from Indonesia more available on the market at better prices might allow them to compete a bit more with the businesses in India and China that dominate the market.
There are many more interesting topics in this book, my favourite being the discussions on economic growth and wealth inequality. The mentality behind constant GDP growth is pervasive, and yet probably not realistic. The mechanisms behind growth often focus on productivity. There are some factors of productivity that are pretty well understood - educating your workforce better opens up more opportunities. Technological changes can improve a workers ability to increase tasks easily and more efficiently. And so on. However, a large portion of productivity, called Total Factor Productivity, is basically not understood. Robert Solow famously called it "the measure of our own ignorance". This large category, which takes up a large percentage of productivity changes, may have to do with topics that cannot be calculated by economics in a sense. Human happiness, loyalty at work, dignity, contentment, and so on may all be factors in this category. Western nations have been trying to encourage growth by lowering taxes, which in turn leads to poorer public services, more expensive private services, and declining investments in all sorts of public goods and services, such as public works, library services, welfare, public investment and much much more. This gutting of civic life, surprise surprise, does not actually improve economic growth. In fact, since the on set of Reagonomics, the Western world has seen a spectacular decline in growth rates, and citizens themselves have been forced out of the democratic decision making process through the shuttering of trade unions. This has led to declines in many factors for the working classes of the world.
This book is a series of interesting discussions and policy prescriptions for numerous topics that effect public administrations across the globe. These topics are often buried in ideological messaging so deep, it is hard to discover or discuss any of the factors involved, thus making them difficult to solve. Banerjee and Duflo have given a nuanced and interesting examination of these topics, and identified some key elements to be considered when finding solutions. They also offer a perspective that is grounded in fact, and does not bend to the whims of the US right/left dichotomy which has polluted solutions focused policy. Sympathetic discussions on any down and out group, whether new immigrants, or rust belt communities, are prevalent, and no solution is offered without discussing the counterpoint, and how some of these counterpoints are quite valid. A very interesting book, and an easy recommendation for those looking for a good economics book for the modern era.
While I enjoy reading non-fiction, I tend towards less academic topics - or rather, anything that does not remind me of my undergraduate studies. However, the praises about this book and how it addresses economics in a more enlightened and less conventional or traditional approach intrigued me.
Were those praises well-founded? I would definitely say so there were some truly fascinating insights to be gleaned from this book. Stuff that I did not learn in university during my Economics lectures. The writing was accessible and not dry despite the subject matter. Even though it took me a long time to finish this book, it was by no means a challenging nor a boring read. However, books like these do necessarily need to be read in small bites - for me, anyway. As far as economics is concerned, I'd recommend this title, especially for those who are interested in or involved in policy-making.
"Economics is too important to be left to economists."
"We, the economists, are often too wrapped up in our models and our methods and sometimes forget where science ends and ideology begins."
What stood out for me in this remarkable book is Abhijit Banerjee and Esther Duflo's humility. The book focuses on policy debates and topics that receive enormous media attention- immigration, trade and tariffs, inequality, taxation, etc. But the way it does is by building enough historical context, explaining the learnings from the past, and citing the research done in that particular field. The book is useful and compelling, and as they say towards the end, "we clearly don't have all the solutions, and suspect nobody else does either. We have much more to learn. But as long as we understand what the goal is, we can win."
This is a book by the two most recent winners of the Nobel Prize for economics. They are husband and wife and they have made their careers by studying economics largely among poor people (a southern rather than northern focus). They also coauthored “Poor Economics”, which also is well worth reading. They are highly unusual among the economists who gain the most traction in the US for multiple reasons: 1) they do experiments (RCTs), 2) they are interested in how theory and practice fit together, especially in terms of empirical support; 3) they are wary of simple nostrums that have come to economic policies and writings and instead start from notions of dignity, even for poor people; 4) they do not believe that economics has all the answers - although economics does have something to add to current policy debates. And finally, they write very well and have produced a book which is relatively easy to read - an accomplishment for economics trade books. The book is very accessible, even to those wary of tables and regression charts.
So what is the intuition here? The book is a collection of chapters devoted to different topical areas, all of which are widely discussed in current discourse on political economy. You can guess them - immigration, trade, economic growth (or the lack thereof), taxes, the role of government, and programs for the poor. In each one, the authors try to sort out what the current “best thinking” and research results suggest is the “state of the art”. This is compared with both economic orthodoxy and popular political notions about economic topics. They show that what economists claim about policies is often inconsistent with what the best thinking and research in the area shows. This in turn is often strongly out of line with popular thinking on the same topics.
The punchline is that paying attention to economic research and current thinking is worthwhile and capable of improving policy making. ...but the individual is not excused from drawing their own judgments and being an informed consumer of economic research. One should never take what “TV economists” talk on about as the last word - or even a good word. For example, there appears to be no credible evidence that tax cuts contribute to sustained and meaningful growth. It is not clear that economists - or anyone else - have superior insights on what causes growth and what can be done to promote growth in a country.
There is an entire literature emerging on the need for intelligent but skeptical treatment of what economics does or does not offer to public policy. This book is a fine addition to that literature and is well worth reading.
I got lured by 'written by two Nobel prize winners'. Unfortunately :(
I'm not going to rate it chapter by chapter - I'll rather stick to the general impression instead. The biggest flaw in GE4HT is that it's very one-sided (doesn't present various perspectives and honest pros/cons), opinionated (authors have very clear political preferences at the left side of the spectrum) and whatever datoids/factoids are presented, they are very rarely backed up with any source/reference (!).
It's possible I would not pay that much attention to that, but the initial chapter is about immigration and to be honest, I was very negatively surprised with how shallow and US-centric the presented picture was. Even when authors referred to European examples (like Denmark) they were actually oversimplifying - in a way that completely twisted problems actually faces by Danes (I may not be an expert here, but I lived in Copenhagen for some time, so I had a chance to learn a bit about immigration policies & their challenges there).
It doesn't get significantly better in the following chapters. The consideration about taxation or UBI was shallow and in fact - didn't bring anything valuable to the table (IMHO). The promised (in the title) "answers" aren't new, revealing, or in any way more convincing than they were before (just because the authors present them with full confidence ...). Many of them sound as scary as ever (e.g. various kinds of subsidizing or tax increase).
If you expect something like "Radical Markets" (as I did), you'll be massively disappointed - the book isn't really thought-provoking: it doesn't open any interesting or productive discussion.