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

by Abhijit V. Banerjee

All the East Asian success stories of the postwar era—Japan, Korea, Taiwan, and most recently China—have used one strategy or the other to help exporters speed up their expansion.

And yet there is something else economists do know but tend to keep closely to themselves: the aggregate gains from trade, for a large economy like the United States, are actually quantitatively quite small.

there is no way to avoid dealing with the distinction between what individuals need and what they want, and how society at large should value those desires.

despite legal bans, some form of untouchability continued to be practiced in almost 80 percent of the villages.

of what may have seemed like random violence. Violence is often a convenient camouflage for theft. It is also true that sometimes

The most surprising finding, however, was that the BTB policy substantially increased racial disparities in callbacks. White applicants to BTB-affected employers received 7 percent more callbacks than similar black applicants before BTB. After BTB, this gap grew to 43 percent. The

as measuring “sports intelligence,” or “personal factors correlated with the ability to think strategically during an athletic performance.” In the “natural ability” condition, the African Americans did much better than the whites. In the “sports intelligence” condition, the whites did much better than the African Americans. Everyone, including the blacks themselves, had bought into the stereotype of the African American natural athlete and the white natural strategic player. And this was at Princeton…

Psychologists these days encourage parents to tell their children not that they should be nice, but that they are nice, and all they have to do is to behave in conformity with their natural kindness. That applies to all of us.

The most effective way to combat prejudice may not be to directly engage with people’s views, natural as that might seem. Instead, it may be to convince citizens it is worth their while to engage with other policy issues.

Family firms are common all over the world (from small farms to large family groups), and they do not always fully adapt to “economic” incentives. Firms are passed on to sons even when daughters would be better at managing them,96 all the fertilizer in the family goes to one (male) person’s plot when it would make sense to use a little bit in all the fields.

On the day of the succession, the stock market returns of the companies that appointed an outside CEO went sharply up, while the returns of the companies that appointed an inside CEO did not. The market was rewarding the appointment of an outsider. And apparently the market was onto something. Firms that appointed family CEOs experienced large declines in performance in the subsequent three years, compared to firms that promoted unrelated CEOs: their return on assets fell by 14 percent.98

The growth rate crashed in 1980, the year after Vogel’s book came out. And it never really recovered.

Overvaluation ?????

Another implication of the idea that growth is slowed down by misallocation is that countries like India that are growing fast right now should fear complacency. It is relatively easy to grow fast, starting from a spectacularly messed-up economy, because of the gains from better resource use.

What did they truly prefer then, the option they actively chose or the one they did not choose but were willing to stick to? A government may decide that since there is no clear answer to this question, it may as well go with the one better for the environment.

We are told that in the long run everything was fine, but the long run was very long indeed. Real blue-collar wages in Britain were almost halved between 1755 and 1802.

They would recover their 1755 level only in 1820, sixty-five years later.13 This period of intense technological progress in the United Kingdom was also an era of intense deprivation and very difficult living conditions.

As software engineers become richer, they have more money to hire dog walkers, who have become relatively cheaper over time, since there is little alternative employment for those with no college education. Even if people remain employed, this leads to an increase in inequality,

everyone else pushed to jobs requiring no specific skills; jobs where wages and working conditions can be really bad. This accentuates a trend that has taken place since the 1980s. Workers without a college education have increasingly been pushed out of mid-skill jobs, such as clerical and administrative roles, into low-skill tasks, such as cleaning and security.17

Unfortunately, notwithstanding the grandiose talk about singularities, the bulk of R&D resources these days is directed toward machine learning and other big data methods designed to automate existing tasks,

automation of existing jobs increases the potential for the current wave of innovation to be very damaging for workers.

The Korean plan reduces tax subsidies for businesses investing in automation and combines it with a tax on outsourcing, so that the tax on robots does not lead to outsourcing.25

The one difference between the UK and the US is that there was never a major attempt to cut welfare

pay 1.3 percent of their total investment to their fund manager every year, which over the thirty-year horizon of an investor saving for retirement amounts to handing the manager a third of the assets initially invested.

The superstar narrative does not fit finance very well. Finance is not a team sport. It is an industry marked, supposedly, by individual geniuses, people who can spot the particular irrationalities currently infecting the markets or identify the next Google or Facebook before anybody else.

In fact, the average US mutual funds underperform the US stock market52—they seem to have borrowed the language of individual talent but not the talent itself.

large part of the premiums paid to financial sector employees are almost surely pure rents; that is, rewards not for talent or hard work but for nothing more than having lucked out in landing that particular job.

Faster trading may be profitable because it allows the trader to react more quickly to new information, but given that the reaction time is already seconds or less, it seems implausible that it improves the allocation of resources in the economy in any meaningful way.

Paternalism, once a feature of the large corporations that demanded loyalty but took care of their own, is now restricted to elite workers in software companies, and is expressed in the form of free food and dry cleaning in exchange for long hours.

It makes salary less valuable for the CEO, and it becomes cheaper for the board to pay the CEO in other “currencies,” such as allowing him to pursue his dream projects. This might not always be what the shareholders want (they want higher profits, not size per se)—economists in the 1960s and 1970s were concerned with empire-building by managers—but could be better for the workers, or the world.

After all, most Americans who own a home already pay a tax on the value of their home: the real estate tax they pay to their municipal government. But this tax is regressive. Suppose you own a house worth $300,000 and pay 1 percent property tax ($3,000). Then you will effectively pay 10 percent of your net wealth if you have a mortgage of $270,000 (since your net wealth is then $30,000) but 0.1 percent of your net wealth if you have financial assets of $2.7 million and no mortgage (since your net wealth is then $3 million).

people who feel economically vulnerable being particularly eager to demonstrate their worth through useless purchases they can ill-afford, and an industry all too ready to provide these services for a handsome fee.

Life expectancy declined in 2015, 2016, and 2017 for all Americans.

This grim trend is specific to US whites, and in particular to US whites without college degrees: in all racial groups in the US except the whites, mortality is falling.

the states in the US where people take the most pride in their autonomy are also the ones most dependent on federal subsidies (Mississippi, Louisiana, Tennessee, and Montana top the list by federal aid as fraction of revenue).

as bankers cheated more in Switzerland, in India students planning to work for the government cheated more.

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. This has the consequence that areas with a large fraction of small-holders tend to find it difficult to industrialize.

Cutting the number of layers of bureaucrats involved in the monitoring of the program reduced the wealth of the median NREGA functionaries by 14 percent.

What?

there was a line item in the budget for opium purchases. He discovered this was the remnant of a long-defunct program to help opium-addicted refugees from Afghanistan who had settled in Delhi.

known for delivering low quality at a high price.