Jean Drèze reviews Good Economics for Hard Times: Better Answers to Our Biggest Problems by Abhijit Banerjee & Esther Duflo
Viewing economists as “ plumbers, ” Abhijit Banerjee and Esther Duflo show how economic reasoning and evidence can shed light on real-world problems
John Maynard Keynes, the founder of Keynesian economics, once said that “if economists could successfully pass themselves off as humble and capable people, on par with dentists, that would be great.” Judging by recent opinion polls, economists still have a long way to go. According to a survey cited in this book, 84% of people in the UK would trust professional advice from a nurse, but only 25% would trust an economist.
The purpose of this book is in part to demonstrate the value of a ‘good economy’, and in part to bring economic reasoning to bear on the crucial issues of our time – poverty, inequality, trade, migration, climate change, among others. Rather than dentists, Banerjee and Duflo view skilled economists as plumbers who “patiently solve problems with a combination of science-based intuition, experiment-aided guesswork, and a bunch of pure trial and error. “. Sure enough, their favorite trial-and-error tool is a randomized controlled trial, but they use other types of evidence wisely.
Join the dots
The result is convincing in many ways. In fact, the book is a model of how economic reasoning and evidence can shed light on real world problems. The authors excel at combining the points of many theoretical and empirical studies. The arguments flow like clear water. Written in an engaging style, the book makes economics accessible to a wide audience. Who would have thought that the Stopler-Samuelson theorem had so much to offer?
The book is divided into nine thematic chapters on some of the key issues of today’s “hard times”. On migration, the authors challenge alarmist rhetoric and argue that, far from being a major threat, migration should be welcomed if not encouraged. A beautiful chapter on international trade reminds us that there are “trade pains” (at least for some people), not just gains as many economists tend to think. The chapter on economic growth sums up our ignorance well and concludes that it is better to improve the quality of life with the resources at our disposal than to pretend to know how to accelerate growth. Some chapters (notably on climate change) are a bit inconclusive, but others end with a clear message, like raising taxes on the super-rich to reduce income inequality.
The book ends with a long but not entirely convincing chapter on social policy. For developing countries, the authors support a kind of “ultra-basic universal income” (UUBI). However, the basis for this recommendation is unclear – one is unable to understand the claim “we are in favor of a UUBI based on what we know so far” (p. 296). On the one hand, it will all depend on how UUBI is to be funded. The authors note, apparently in approval (p. 295), that in India, 1.38% of GDP could be mobilized for UUBI by abolishing “the ten largest central social protection schemes”, without mentioning what they are. . In this case, they include valuable programs such as school meals, integrated child development services and the national rural employment guarantee system. There is a flaw in the argument to say the least.
Clues to the future
By the end of the book, the reader certainly feels wiser, but not necessarily clearer on what to do to tackle the big issues of our time. Despite all its “revolutionary” character, announced on the cover, the book lacks a few clues on the way forward. Instead, it ends with a somewhat rhetorical “call to action”.
Here we seem to encounter the limits of “plumbing”. To repair a water faucet, an informed search may be sufficient. But in order to build a house, you have to think carefully about what type of house you want. It is not only a question of technical knowledge, but also of normative judgment on what we are trying to achieve and for whom. Banerjee and Duflo remain a bit enigmatic in this regard. They sure want the world to be a better place, but there’s no telling what that place would look like other than having less poverty and wickedness. I’m sure they have an answer, and hopefully we’ll hear it someday – maybe in their next book.
Meanwhile, A good economy for tough times has a lot to offer. It’s always hard to recommend good economics books to a layman who wants to get an education without getting bored – this one is a sure bet.
Good economy for tough times: better answers to our biggest problems; Abhijit Banerjee, Esther Duflo, Juggernaut, ₹ 699.
The author is visiting professor in the Department of Economics at Ranchi University.