Good Economics for Hard Times: Better Answers to Our Biggest Problems

by Abhijit V. Banerjee

looking back, it is quite clear that many of the important successes of the last few decades were the direct result of a policy focus on those particular outcomes, even in some countries that were and have remained very poor. For example, a massive reduction in under-five mortality took place even in some very poor countries that were not growing particularly fast, largely thanks to a focus on newborn care, vaccination, and malaria prevention.

The magazine Nature concluded that insecticide-treated net distributions averted 450 million malaria deaths between 2000 and 2015.131

While these things may not propel countries to permanently faster growth, they could dramatically improve the welfare of their citizens.

For the world of policy makers, this perspective suggests that a clear focus on the well-being of the poorest offers the possibility of transforming millions of lives much more profoundly than we could by finding the recipe to increase growth from 2 percent to 2.3 percent in the rich countries.

at 1.5°C, 70 percent of coral reefs would vanish. At 2°C, 99 percent.1

The number of people directly impacted by the rise in sea levels and the transformation of cultivable land into desert would also be quite different under the two scenarios.

in order to limit warming to 2°C, CO2 equivalent (CO2e) emissions3 would need to be reduced by 25 percent by 2030 (compared to the 2010 level) and go to zero by 2070.

The engineering estimates apparently did not fully apply to real houses in real places; they were much too optimistic.

Again, the engineers who calculated the potential emission gains from technologies that saved energy were too optimistic in their predictions.

If people don’t know how they feel about something as quotidian as a box of chocolates or a bottle of wine, why do we expect them to have clear preferences about climate change?

There again, tastes probably do not fall from the sky. Economists have begun to recognize the role of “habits” in our preferences: what we grew up consuming forms our tastes today.

Even when an NGO distributed cleaner stoves for free, people were not interested enough to get them fixed when they broke.37 Low demand for clean air may come from a failure of many of the poorest households to connect clean air to a healthy, happy, and productive life.

Vest protesters were making was that the increase in the gasoline tax was a way for rich Parisians (who can take the subway to work) to buy themselves a conscience at the cost of people from the suburbs and countryside who had no choice but to drive their cars.

Nothing in either our theory or the data proves the highest GDP per capita is generally desirable. Yet because we fundamentally believe resources can and will be redistributed, we fall into the trap of always trying to make the overall pie as big as possible.

Real blue-collar wages in Britain were almost halved between 1755 and 1802. Although 1802 was a particularly low year, they were on a declining trend between 1755 and the turn of the century, and it is only at the turn of the century that they started increasing again. They would recover their 1755 level only in 1820, sixty-five years later.13

the bulk of R&D resources these days is directed toward machine learning and other big data methods designed to automate existing tasks, rather than the invention of new products that would create new roles for workers, and hence new jobs.20 This may make economic sense for the companies, given the financial gains in replacing workers with robots. But it distracts researchers and engineers from working on the truly pathbreaking innovations. For example, inventing new software or hardware health workers could use to assist patients in doing their rehabilitation therapy at home after a surgery rather than in a hospital could potentially save insurance companies lot of money, improve well-being, and create new jobs.

The increase in concentration thus helps explain a part of why wages are not keeping pace with GDP.

In the UK, which is the most finance-dominated large economy, between 1998 and 2007, employees in the financial sector, who represented only about one-fifth of those in the top 1 percent, swallowed 60 percent of the rise in earnings in this group.

So the point of the very high top tax rates of the 1950s and 1960s, which applied only to extremely high incomes, was not so much to “soak the rich” as to eliminate them. Almost nobody ended up paying the top rates, because those very high incomes had all but disappeared.58 When the top tax rates went down to 30 percent, ultra-high salaries became attractive again.

at the country level, there is a strong correlation between the size in the cuts in top tax rates between 1970 and today, and the increase in inequality.

The narrative has spread: even today, while many in the US and the UK clearly resent their own economic situation, they tend to blame immigration and trade liberalization rather than the increasing vacuuming of resources toward the very rich.

Social scientists have long suspected that people’s sense of self-worth is related to their position in the groups they see themselves as part of—their neighborhoods, their peers, their country. If this were true, inequality would of course directly affect well-being.

when the rest of the world saw convergence between mortality levels of the college educated and the rest, the United States went the other way.

In other words, the dream of a tax reform that leaves “99 percent of the taxpayers with a lower tax bill” would guarantee that the United States continues to be unable to redistribute much to those falling behind. Tax reform needs to apply not solely to the ultra-rich, but also the merely rich and even the middle class.

Monitoring often relies on outsiders limited in their ability to understand the bigger picture or evaluate how well the overall social objectives are being served; the most they can do is to verify that due process is followed.

In turn, this means bureaucrats tend to focus a lot on checking off the right boxes to avoid attracting attention. This creates a specific bias toward following the letter of the law, even when its spirit is somewhere entirely different.

Interestingly, for example, these days most rural land-owning households in India get a majority of their income from something other than agriculture. But land ownership is still valuable because it comes with the assurance that if all else fails, they can grow their own living.

Unfortunately, evidence suggests that it is actually difficult for people to find meaning outside the structure of their work.

It seems that it is very hard for people to individually figure out how to build meaning into their lives. Most of us need the discipline provided by a structured work environment, to which we then add significance or meaning.

Would French GDP be higher if agricultural production were more concentrated and farmhouses were replaced by warehouses? Possibly. Would welfare be higher? Probably not.

We each should have a universal right to a productive life within society.

majority of Republicans and a substantial fraction of Democrats are against the government starting a universal income program or a national job program to support those who lose their jobs to automation, even though many more are in favor of limiting the right of companies to replace people with robots.86 Behind this is partly suspicion about the government’s motives (they only want to help “those people”) and partly exaggerated skepticism about the government’s ability to deliver.

Putting these families squarely on track toward productive work required more than money. It required treating them as human beings with a respect they were not used to, recognizing both their potential and the damage done to them by years of deprivation.