The book Good Economics for Hard Times co-authored by MIT economists Abhijit V. Banerjee and Esther Duflo (winners of the 2019 Nobel Prize in Economic Sciences) debates various critical issues of immediate concern like immigration, slowing trade, climate change, income inequality and job loss among others. With powerful reasoning, research and evidence, the authors deconstruct some of the fallacious arguments often used in economics with their basis merely in ideology, intuition, and ignorance. The book pleads for doing ‘good economics’ and provides enlightening policy ideas for improving global wellbeing and restoring human dignity, particularly in the developing world.
Being honest in their approach, the two economists accept the limitations of social sciences and acknowledge the errors of their research but at the same time want the world to listen to the economists. With humility they argue, “…but it does not mean they are always correct. But we also have useful expertise no one else has.” Instead of building some grand theories, complex narratives and mathematical models, the spirit of the book is to emphasize that “there are no iron laws of economics keeping us from building a more humane world, but there are many people whose blind faith, self-interest, or simple lack of understanding of economics makes them claim this is the case.” (p. 255)
The authors, with the help of Randomized Controlled Trials (RCTs) and various empirical studies, show that the classic supply-demand model does not help to understand the so-called ‘deluge’ of immigration. The book debunks the popular narrative that the immigration of low-skilled workers hurts the wages and employment opportunities of the natives. Instead, the evidence looks contrary. Banerjee and Duflo analyze that immigration has not increased exponentially — it’s 3% of the global population (same as in 1960) — and immigrants are not just workers and ‘shithole people’ but also consumers. “The newcomers spend money: they go to restaurants, they get haircuts, and they go shopping. This creates jobs, and most jobs for other low-skilled people,” argue Banerjee and Duflo. Some other reasons by which they substantiate their argument is that demand for labour increases as it slows down the process of automation and mechanization — the immigrants perform the simpler tasks, the natives switch to more rewarding tasks and the immigrants are ready to perform low-quality jobs that the natives are reluctant to carry out. They suggest that encouraging migration and removing key obstacles should become a policy priority because immigrants don’t take jobs from anyone as these jobs would remain unfilled even if there were no immigrants around.
The authors remain sceptical that free trade and open markets bring gains everywhere. The implied nullification of David Ricardo’s Law of Comparative Advantage (how countries gain from free trade) and that the tide of liberalisation had lifted all boats, just some more than others, sets the base for the chapter on international trade. The authors with the help of extensive research conclude that simultaneously the gains and pains occurring from the free trade were unequally disturbed among the rich and the poor. “Those lucky enough to be in the right place at the right time, with right skills or the right ideas, grew wealthy…for the rest, the experience has been mixed. Jobs were lost and not replaced. Rising incomes have paid for more new jobs but trade has also created a more volatile world where jobs suddenly vanish only to turn up a thousand miles away,” the authors argue, highlighting the damaging effects of trade liberalization. Any social policy targeting the losers from trade should involve either limiting the number of losers by helping those move or change jobs or finding a way to remunerate them.
The authors’ meticulous work highlights how economic growth has baffled many brilliant economists of our time. Economists have failed to predict growth fluctuations even by taking help from various economic models and theories. There is no clear evidence to prove that the age of fast growth rate will eventually return or the definitive proof it won’t. The narrative that regional spillovers, charter cities, or low tax rate at the top promote growth, is a non-truth based on a very selective reading of literature. Focusing on the well-being of the poorest and taking steps to constantly improve the quality of life offers the possibility of transforming the millions of destitute lives.
The chapter on climate change emphasizes that the very technological advancements that can help to protect people from climate change and economic growth act as a catalyst of climate change. The idea proposed by the two economists to tackle the climate catastrophe is to ‘decarbonize’ both the developed and developing economies by implementing a strict universal ‘carbon tax’ or if this “seems too extreme, the government(s) could nudge people gently towards choices that are better for the environment”.
For the authors, the 1980s saw the explosion, not only of income inequality but also of wealth inequality across the world. Various factors that contributed to this increase in inequality were the juggernaut of globalization and the rise of the info-tech industry, combined with a sticky economy and some important country-specific local changes. The authors underscore the importance of proposals like Alexandria Cortez’s top marginal income tax above 70 per cent, Elizabeth Warren’s progressive wealth tax, and Bernie Sander’s job guarantee scheme in the United States, and argue that these proposals look genuine but are heavily politicized instead of implementation. As such, the high marginal income tax seems a perfectly sensible way to limit the explosion of top income inequality but a reformed tax system should not “apply solely to the ultra-rich, but also the merely rich and even the middle class”. Governments of the day have to assume a greater role because it seems unreasonable to allow markets to drive all social outcomes. For that, the government has to earn the legitimacy and trust it has lost a very long time ago amongst its citizens.
The authors end the book with a fine and convincing chapter on social policy. They support a “universal ultra-basic income” (UUBI) for the poor countries and, with evidence from RCTs and survey reports, make some key suggestions for the Government of India. “The best combination may be a UUBI everyone can access when they need it and larger transfers targeted to the very poor and linked to preventive care and children’s education.” (p. 297)
The authors strongly believe that protecting the esteem, self-respect, and dignity of the poor beneficiaries should be one of the central concerns in the design of any social policy and public program as without empathy or understanding, the charity becomes callous, humiliating, and punitive.
Apart from discussing economics, the book also offers some useful insights into the burning issues like identity politics, xenophobia, bigotry, media bias, artificial intelligence, and how these issues have become the staple of populist leaders around the globe.
The authors have mostly drawn their conclusions from field experiments and RCTs, but relying wholly and solely on these methods while comparing large and diverse economic systems ignores the limitations of these methods per se. But, as researchers, they are aware of these limitations, and that is why at the beginning of the book, they accept the limitations of social sciences and acknowledge the errors of their research.
Abhijit Banerjee and Esther Duflo surely deserve applause and positive reviews for breaking down the complex mainstream economics into very simple, familiar and lucid language that even people with a basic understanding of economics can fully comprehend the game (whether good, bad or poor) around us.
