Tackling today’s trickiest global challenges with the winners of the Nobel Prize in Economics, Esther Duflo and Abhijit Banerjee.
Esther Duflo, professor of poverty alleviation and development economics at MIT. Winner of the 2019 Nobel Memorial Prize in Economic Sciences. Co-founder of Abdul Latif Jameel Poverty Action Lab. Co-author of “Good Economics for Hard Times.”
Abhijit Banerjee, Ford Foundation International Professor of Economics at MIT. Winner of the 2019 Nobel Memorial Prize in Economic Sciences. Co-founder of Abdul Latif Jameel Poverty Action Lab. Co-author of “Good Economics for Hard Times.”
From The Reading List
Excerpt from “Good Economics for Hard Times” by Esther Duflo and Abhijit Banerjee
What undermines trust in economists?
A part of the answer is that there is plenty of bad economics around. Those who represent the “economists” in the public discourse are not usually the same academic economists who are part of the panel convened by the Booth School of Business at the University of Chicago to answer questions on core economic topics. The self-proclaimed economists on TV and in the press—chief economist of Bank X or Firm Y—are, with important exceptions, primarily spokespersons for their firms’ economic interests who often feel free to ignore the weight of the evidence. Moreover, they have a relatively predictable slant toward market optimism at all costs, which is what the public associates with economists in general.
Unfortunately, in terms of how they look (suit and tie) or the way they sound (lots of jargon), the talking heads are hard to tell apart from academic economists. The most important difference is perhaps in their willingness to pronounce and predict, which unfortunately makes them all the more authoritative. But they actually do a pretty poor job of predicting, in part because predictions are often well-nigh impossible, which is why most academic economists stay away from futurology. One of the jobs of the International Monetary Fund (IMF) is to forecast the rate of growth of the world economy in the near future. Without a whole lot of success, one might add, despite its team of many very well-trained economists. The Economist magazine once computed just how far the IMF’s forecasts were off on average over the period 2000–2014.12 For two years from the time of prediction (say, the growth rate in 2014 predicted in 2012), the average forecast error was 2.8 percentage points. That’s somewhat better than if they had chosen a random number between –2 percent and 10 percent every year, but about as bad as just assuming a constant growth rate of 4 percent. We suspect these kinds of things contribute substantially to the general skepticism of economics.
Another big factor that contributes to the trust gap is that academic economists hardly ever take the time to explain the often complex reasoning behind their more nuanced conclusions. How did they parse through the many possible alternative interpretations of the evidence? What were the dots, often from different domains, they had to connect to reach the most plausible answer? How plausible is it? Is it worth acting upon, or should we wait and see? Today’s media culture does not naturally allow a space for subtle or long-winded explanations.
Both of us have had to wrangle with TV anchors to tell our full story (often to have it edited out of what gets shown), so we recognize why academic economists are often unwilling to take on the responsibility of speaking out. It takes a lot of effort to be heard properly, and there is always the risk of sounding half-baked or having one’s careful words manipulated to mean something quite different.
There are of course those who do speak out, but they tend to be, with important exceptions, those with the strongest opinions and the least patience for engaging with the best work in modern economics. Some, too beholden to some orthodoxy to pay attention to any fact that does not square with it, repeat old ideas like a mantra, even though they have long been disproved. Others are there to pour scorn on mainstream economics, which it may sometimes deserve; but that often means they are unlikely to speak for today’s best economic research.
Our sense is that the best economics is frequently the least strident. The world is a sufficiently complicated and uncertain place that the most valuable thing economists have to share is often not their conclusion, but the path they took to reach it—the facts they knew, the way they interpreted those facts, the deductive steps they took, the remaining sources of their uncertainty. This is related to the fact that economists are not scientists in the sense physicists are, and they often have very little absolute certainty to share. Anyone who has watched the comic TV series The Big Bang Theory knows that physicists look down on engineers. Physicists think deep thoughts, while engineers muck around with materials and try to give shape to those thoughts; or at least that’s how the series presents it. If there were ever a TV series that made fun of economists, we suspect we would be several rungs below engineers, or at least the kind of engineers who build rockets. Unlike engineers (or at least those on The Big Bang Theory), we cannot rely on some physicist to tell us exactly what it would take for a rocket to escape the earth’s gravitational pull. Economists are more like plumbers; we solve problems with a combination of intuition grounded in science, some guesswork aided by experience, and a bunch of pure trial and error.
This means economists often get things wrong. We will no doubt do so many times in this book. Not just about the growth rate, which is mostly a hopeless exercise, but also about somewhat more limited questions, like how much carbon taxes will help with climate change, how CEOs’ pay might be affected if taxes were to be raised a lot, or what universal basic income would do to the structure of employment. But economists are not the only ones who make mistakes. Everyone gets things wrong. What is dangerous is not making mistakes, but to be so enamored of one’s point of view that one does not let facts get in the way. To make progress, we have to constantly go back to the facts, acknowledge our errors, and move on.
Besides, there is plenty of good economics around. Good economics starts with troubling facts, makes some guesses based on what we already know about human behavior and theories elsewhere shown to work, uses data to test those guesses, refines (or radically alters) its line of attack based on the new set of facts, and eventually, with some luck, gets to a solution. In this, our work is also a lot like medical research. Siddhartha Mukherjee’s wonderful book on the fight against cancer, The Emperor of All Maladies, tells a story of combining inspired guesswork with careful testing, and many rounds of refinement, before a new drug gets to the market.13 A big part of the economist’s work is very much like that. As in medicine, we are never sure we have reached the truth, just that we have enough faith in an answer to act on it, knowing we may have to change our minds later. Also like in medicine, our work does not stop once the basic science is done and the core idea is established; the process of rolling out the idea in the real world then begins.
At one level, one could think of this book as a report from the trenches where that research happens: what does the best economics of today tell us about the fundamental issues our societies are grappling with? We describe how today’s best economists think about the world; not just their conclusions but also how they got there, all the while trying to separate facts and pipe dreams, brave assumptions and solid results, what we hope for and what we know.
It is important that in this project we be guided by an expansive notion of what human beings want and what constitutes the good life. Economists have a tendency to adopt a notion of well-being that is often too narrow, some version of income or material consumption.
And yet all of us need much more than that to have a fulfilling life: the respect of the community, the comforts of family and friends, dignity, lightness, pleasure. The focus on income alone is not just a convenient shortcut. It is a distorting lens that often has led the smartest economists down the wrong path, policy makers to the wrong decisions, and all too many of us to the wrong obsessions. It is what persuades so many of us that the whole world is waiting at the door to take our well-paying jobs. It is what has led to a single-minded focus on restoring the Western nations to some glorious past of fast economic growth. It is what makes us simultaneously deeply suspicious of those who don’t have money and terrified to find ourselves in their shoes. It is also what makes the trade-off between the growth of the economy and the survival of the planet seem so stark.
A better conversation must start by acknowledging the deep human desire for dignity and human contact, and to treat it not as a distraction, but as a better way to understand each other, and to set ourselves free from what appear to be intractable oppositions. Restoring human dignity to its central place, we argue in this book, sets off a profound rethinking of economic priorities and the ways in which societies care for their members, particularly when they are in need.
That said, on any single issue we will cover in the book, or perhaps all of them, you may well come to a different conclusion than we do. We hope to persuade you not reflexively to agree with us, but to adopt a little bit of our methods and share some part of our hopes and fears, and perhaps by the end, we will really be talking to each other.
Excerpted from GOOD ECONOMICS FOR HARD TIMES by Abhijit V. Banerjee and Esther Duflo. Copyright © 2019. Available from PublicAffairs, an imprint of Hachette Book Group, Inc.
Foreign Policy: “Economics’ Biggest Success Story Is a Cautionary Tale” — “When I was a graduate student of economics in the early to mid-1990s, a new idea was just starting to emerge in the field of global development: using randomized controlled trials (RCTs), of the sort that had long been common in medicine, to assess efforts to assist the poor. One of the very first of these studies tested the impact of eradicating parasitic worms on school attendance among children, with the researchers picking schools randomly to determine not only how children in these schools were affected but also neighboring ones. Researchers have since tested the impact of placing additional teachers in a classroom or monitoring teachers’ attendance with cameras; the effect of access to bank or microfinance loans; and even the effect of specific appeals made by candidates in an election campaign on voting behavior.
“The growing interest in RCTs has culminated in the awarding of the Nobel Memorial Prize in Economic Sciences last week to several of its pioneers: Esther Duflo, Abhijit Banerjee, and Michael Kremer. The RCTs they have promoted were described by the Royal Swedish Academy of Sciences as having come to ‘entirely dominate development economics.’ The prize committee suggested the rise to centrality of this previously marginal idea was evidence of scientific progress and of a breakthrough that much better enabled us to ‘improve the lives of the worst-off people around the world.’ We should all be glad if it were so simple. The fact that RCTs now so thoroughly shape development economics may be less a success story than a cautionary tale.
“The RCT trend has been fueled by two factors: one from within economics, the other from outside it. Within the discipline, RCTs promised to address a problem that had bedeviled economists’ efforts to empirically assess development programs—namely, that the people who fared better when there was a change in circumstances were often those who were also more motivated or better positioned in some way to take advantage of it. There was no sure way of telling apart which interventions seemed to work because of such factors from which ones worked, well, because they worked. A premise among those who used statistical methods to address this problem had been that experiments on people were not possible. The “randomistas”—as they later came to be called—cheekily turned this idea on its head, proposing precisely to try such experiments.”
Yahoo! Finance: “Nobel Prize winning economist Esther Duflo talks her new book ‘Good Economics for Hard Times’” — “MIT economist Esther Duflo is one of three recipients of this year’s Nobel Prize in Economics for her work in what the committee called an experimental approach to alleviating global poverty. She joined The Final Round to discuss the book she co-authored called ‘Good Economics for Hard Times.’ ”
BBC: “Abhijit Banerjee and Esther Duflo: The Nobel couple fighting poverty” — “For the past two decades, the world’s most-feted economist couple has tried to understand the lives of the poor, in “all their complexity and richness”. And how an inadequate understanding of poverty had blighted the battle against it.
“On Monday, Abhijit Banerjee, 58, and Esther Duflo, 46, won the Nobel Prize in Economics, along with economist Michael Kremer, for their ‘experimental approach to alleviating global poverty.’ More than 700 million people live in extreme poverty, according to World Bank.
“Both Mr Banerjee and Ms Duflo are professors at the Massachusetts Institute of Technology (MIT). Ms Duflo is the second woman to be awarded a Nobel in economics.
“The Indian-born Mr Banerjee and Paris-born Ms Duflo grew up in completely different worlds.”
This article was originally published on WBUR.org.