Professors Banerjee and Duflo published Good
Economics for Hard Times in 2019, the same year they won the Economics
Nobel.
The title sets the tone of the book. The authors begin
by identifying some of the principal features of the ‘hard times’ facing the
present-day world. These include growing economic inequality -- of both income
and wealth -- increasing social polarization by race/ethnicity/religion leading
to fractured societies, growing angst amongst the deprived and declining trust
in state structures. To deal with these hard times the need of the hour is good
economics free of ideology, preconceived notions and assumptions divorced from
reality.
The authors have focused their attention on eight
areas of concern for the modern world. They examine the issue of migration and
its consequences, both real and imaginary (viz. politically created), look at
the pains of free trade and the failure of theory based on unrealistic
assumptions about the real world. They question the economists’ assumption of
given and immutable human preferences and ask if the days of growth are over
and what are growth’s determinants anyway? Global warming, technology,
employment and inequality, the legitimacy of the state and the merits of cash
disbursals and the importance, for welfare policy, of a regard for individual
dignity are also examined in detail.
Banerjee and Duflo are serious iconoclasts, writing
clearly and arguing cogently using a wealth of data from a wide range of
studies by many researchers, to effectively question inadequate theoretical
conclusions, false ‘facts’ and ‘common sense’ perceptions that do not make
sense at all.
The proportion of international migrants in the
world’s population has not changed between 1960 and 2017 and low skilled
migrants have not caused a drop in employment or in wages anywhere! The poorest
do not migrate overmuch; societies just like economies are ‘sticky’ for many
reasons and large -scale migration stems largely from desperation created by
sustained violence. And, on the other hand, Sergey Brin was born in Russia and
Steve Jobs biological father was from Syria!
Trade theory claims, amongst other things, that free
trade raises national income for all participants but assumes that resources
are homogeneous and shift smoothly and seamlessly between occupations and
geographical regions. This assumption is false. Labour is far from
homogeneous and both labour and capital
are ‘sticky’ too. As a result, even if total national income increases from
trade, there are losers and winners and the former need state assistance if
overall welfare is a matter of concern. If the angst of the losers and its
consequences for an otherwise well- to- do society like the US are to be
mitigated, effective state intervention is a must.
It must be emphasized here that a blog post can only
give, at best, a brief glimpse of some interesting things in a book of more
than three hundred densely packed pages. The authors dive deep into each
selected issue and examine multiple dimensions
in detail in every case. And to get at that, the book has to be read as it
deserves to be, slowly and carefully.
Economists take peoples’ preferences as both given and
immutable and proceed on their analysis therefrom. In a fascinating chapter,
the authors examine the whole issue of human preferences and individual and
herd behaviour based on them, in the modern context of the Internet, social
media and the ‘echo chambers’ created by these tech developments. A case study
of Princeton students demonstrates, in very disturbing fashion, how deeply
embedded racial stereotyping can be; how much self-doubt it can engender and
the extent to which it can influence behaviour and performance.
Climate change, likely consequences and possible
remedies, are discussed in detail. One important fact to remember is that 10%
of the world’s population contributes 50% of CO2 emissions and 50% of the least
polluting population contributes 10%.The authors also emphasize that the impact
of global warming will be hardest on the poorest populations of the world and
that, to avoid disaster, there may be no option other than a change in energy
consumption habits along with rapid evolution of green technology.
Inequality of income and wealth -- causes,
consequences and possible redressals -- are taken up for extensive discussion.
The fact that free markets cannot handle all problems leads to the need for
state intervention and an examination of the efficacy of the modern state. Those
of us familiar with the ‘extractive’ and corrupt state may be jolted by the
argument that if the markets cannot do something ,the state must intervene,
even if the cost is higher than it should ideally be. It is also good to
remember that corruption is as much a part of the private, market environment
as it is endemic in the state structure.
A chapter on ‘Cash and Care’ highlights the need for
universal unconditional cash transfers, along with more targeted efforts to
deal with want, not just in the third world, but even in the USA. The
implications of such a policy are analyzed, the problems -- financing and
implementation -- discussed and the necessity of incorporating considerations
of human dignity in notions of welfare, emphasized.
In conclusion, Professors Duflo and Banerjee reiterate
the need for abandoning inadequate assumptions while formulating development
policy. Bad ideas --distorted by ‘ideology, ignorance and inertia’-- can do
enormous harm. Eternal vigilance appears to be the price of good policy and in
the authors’ words ‘Without... vigilance, conversations about multifaceted
problems turn into slogans and caricatures and policy analysis gets replaced by
quack remedies.’
The book is not an easy read but a very rewarding one.
It is educative, it makes one question, it makes one think.
Happy reading.
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