Economics for the Future

Abhijit V. Banerjee & Esther Duflo (2019). Good Economics for Hard Times, Juggernaut, New Delhi, pp.402.

Banerjee and Duflo are back with arguments for conceptualizing economics that is useful to build the future. This is the second book of the Nobel Prize winning duo (https://www.nobelprize.org/prizes/economic-sciences/2019/banerjee/lecture/) and real-life economist couple after their debut ‘Poor Economics’ which was reviewed in this blog (http://thehouseofbooks.blogspot.com/search?q=Poor+Economics). The authors take on the biggest problems facing humanity today- climate change, automation, immigration, welfare and poverty- and explore how a better use of economists’ frame can help solve them. Armed with data, case studies, relentless humour and tender feeling, this work is rigorous as it is humane.

Critique of Economics

The book begins with a frank critique of economics as it is practiced today. Economists come in for a fair share of brickbats for their obsession with economic growth as the ultimate yardstick of good policy making, the method of trade liberalization as a means to achieve them, the unwillingness to move from assumptions of rational economic choices and the inability to connect with the larger public on issues that impact the average person. Crouched under the complexities of fallacious assumptions, mathematical modelling, and inept communication, economists have created a wide gulf between themselves and the rest of the world. Banerjee and Duflo argue that continuing along these traditions is unhelpful as it is unethical. They call for an approach that uses realistic assumptions and make bare the caveat emptor rather than continuing with misleading simplistic versions of the world.

Analysis of Issues

One of the biggest takeaways from this book is the way the authors examine some of the pressing issues today by presenting deliberate questions that challenge commonly held assumptions. For example, all over the world there is a surge of fear against immigrants as arguments abound that they reduce chances of employment and welfare of others. The authors examine immigration both from historical data and theoretical assumptions to bring out what happens to the local economy when groups of a particular skill-set immigrate? Who wins and who loses and what is the long-term impact? The nuances in their reasoning give clear pointers as to how the problems could be solved. The authors caution that careful intervention, not outright prohibition is the way forward.  Similarly, other issues such as automation, welfare and climate change are dissected with reasoned arguments and empirical evidence.

Banerjee and Duflo are known for writing eminently readable books which provoke our thinking and arouse our feeling towards action. They do not disappoint this time. Their canvas is bigger with better challenges to tackle head-on! A great book to begin your year and decade!

Rethinking Poverty

Poor Economics: Rethinking Poverty and the ways to end it, Abhijit V Banerjee and Esther Duflo, Random House India, 2011, pp.404

Development Economics has grown in content and importance in the last few decades. With the ushering of the Human Development Index, a distinct way of looking at development began that encompassed not only improvements in economic indices but also in human life indices. This picture sometimes complemented the GDP sketch but often contradicted it. Ideas regarding national economic policies, allocation of resources and the role of the state and market have undergone tremendous transformation. So have our assumptions regarding poverty and especially how the poor live, think through and make choices in their lives. This ‘othering’ of the poor and the generalizations that we make of them in economic and social theory and literature are at best plausible guess and at worst complete misunderstanding. ‘Poor Economics’ is an important book that brings the narrative of the poor from eighteen countries to the poverty story, as the dramatic personae of history, source of creative thinking and as human beings with agency and power who are as sophisticated and as capricious as everyone is. It is in capturing this complexity and richness without reducing those who are economically poor, that the book succeeds.

Lives and Choices of the Poor

The celebrated economists Abhijit Banerjee (MIT professor and Infosys Prize winner) and Esther Duflo (winner of the prestigious Clarke Medal and the Infosys Prize this year) have pioneered the use of Randomised Control Trials (RCTs) that are basically experiments with people as they live their lives. RCTs are used in medicine to test new drugs and by imitating them in Economics, we can analyse policy prescriptions and judge their efficacy. By observation method, the authors argue that it is possible to make good judgements and accurate assessments of what life situations impact the poor and what does not, through the evidence of their own lives. For instance, in the chapter that explains why schools fail, it was found that the schools do not expect the students to do well in the first place. Changing expectations required a little commitment, expendable energy and effort of the teacher. Despite laws and policies in place, if this simple human factor is missing, the policy will be a huge failure on the ground. Often, it was small changes that made all the difference to a policy and not complete overhaul or rethinking.

Policy Implications

This study has policy implications as understanding the real causes of poverty will help channelize global resources through the appropriate projects of alleviating it. Placing distributive (government services) and redistributive (welfare schemes) of the government and donor aid and support in context, the book discusses different policy issues - poverty trap, public health issues like malaria eradication, education policy and the Constitutional framework, pensions for the elderly- with real time case studies and some accessible solutions.

The insights of the book have implications both to policy design and implementation. The authors agree that eradicating poverty through creative interventions is extremely important on two counts- the moral imperative that it is unacceptable for so many not to have a dignified life and the economic imperative expressed by Amartya Sen as ‘intolerable waste of human talent’. The reasoning of the book is by pondering over specific questions as opposed to broad strokes of universal preoccupations. Secondly, the work stresses on the evidence from the ground not only as empirical but also the only litmus to theoretical understanding.

The message of such an exhaustive and interpretative analysis is that ideology and ignorance should not blind policy makers to scientific rigor, openness to learn and understand with fresh perspective and prioritise those policies that are relevant to the lives of the poor. It is in bridging the gap between the expert and the public through nuanced understanding of human lives that this book sets a trailblazing trend.