Review | Nobel laureates Abhijit Banerjee, Esther Duflo's new book presents poverty and migration in new light

When Abhijit Banerjee, Esther Duflo and Michael Kremer got the Nobel Prize for Economics in 2019, it was cause for plenty of controversy in India. Most notably, Union Minister Piyush Goyal dismissed Banerjee's work for his “totally left-leaning” thinking.

At least Goyal’s comments brought into focus the work of the trio. Banerjee and Duflo, along with fellow economist Kremer, brought an experimental approach to economics to focus on poverty, and in particular, how the poor make decisions. This approach, while popular in medical research, is a pioneering effort on the part of these laureates to use randomized control trials in economic studies.

A randomized control trial (RCT) is a method of field research that compares the effect of an intervention on a group under observation over a period of time. The RCT assesses how that group is faring as compared to the group(s) that did not get the particular intervention. For instance, one can form two groups of unemployed people, where one gets an incentive (such as travel tickets) to migrate for employment, while the other does not. The impact of the intervention, thus, becomes measurable. Of course, this example is oversimplified; there’s more than this to RCTs.

Banerjee, Duflo and Kremer used RCTs to find the causes of poverty and the efficacy of the various policies used to tackle it. With the help of RCTs, they took into account the opinions, mindsets and behaviour patterns of the poor. Banerjee and Duflo first began their research into the public school system in Kenya in the 1990s. After education, they carried out research in the fields of health, credit, farming, “climate and environmental policy, social networks and cognitive science,” as per an article in the online magazine, Quartz. They performed research experiments in “70 to 80 countries,” as per the BBC.

Their work inspires policymakers across the world. For instance, the Indian National Congress took Banerjee’s advice in devising a minimum income guarantee (NYAY) as part of its poll manifesto for the latest Lok Sabha elections. Moreover, the Delhi government’s reforms in the field of education owe a lot to these researchers.

Banerjee and Duflo are no strangers to writing popular books on economics either. Their seminal book, Poor Economics, was hailed across the world as it looked at the various poverty alleviation programmes that worked, the ones that didn’t, and to what extent. Poor… got glowing reviews from international publications, including The Guardian, The New York Times, and the Wall Street Journal. It also helped that Banerjee and Duflo are writers of accessible prose that simplifies hard and important topics for the general public.

Which brings us to the book under review. Banerjee and Duflo’s latest book is Good Economics for Hard Times. It is a topical book written in response to burning issues of the day. The authors write, “Inequality is exploding, environmental catastrophes and global policy disasters loom, but we are left with little more than platitudes to confront them with. We wrote this book to hold on to hope. To tell ourselves a story of what went wrong and why, but also as a reminder of all that has gone right. A book as much about the problems as about how our world can be put back together, as long as we are honest with the diagnosis. A book about where economic policy has failed, where ideology has blinded us, where we have missed the obvious, but also a book about where and why good economics is useful, especially in today’s world.”

Each chapter of the book busts misconceptions about what sways voters in the developed and developing world. The chapter titles are telling: the first is on migration and its impact on employment in the target country. This is followed by one on international trade – mainly on India’s economic liberalization and its impact on poverty, as well as Trump’s tariff war and its future impact on the US economy.

I was particularly impressed with a chapter summarizing leading research on the causes of racism and other forms of group discrimination such as casteism that lead to social polarization.

The authors devote a chapter to the question, ‘Is growth over?’ Here, they tackle a few comforting myths. One of these is the promise that poor countries inevitably catch up with rich ones under capitalism (not true, the authors say); another is that tax cuts for the rich spur economic growth (the authors say that they don’t); and yet another that posits that the spread of the internet in poor countries will magically bring about growth (there’s no evidence for this claim, say the authors).

Unsurprisingly, there is a chapter taking a look at climate change through an economist’s lens. For instance, how warmer temperatures adversely affect productivity, incomes, learning, and health.

There is also the subject of Artificial Intelligence (AI) and its impact on employment and wages that is dealt with in a lucid and conversational style. The possibility that AI may increase unemployment, foster monopolization, and stifle certain kinds of innovation is discussed in the right amount of detail.

The case for cash transfer measures such as Universal Basic Income is buttressed with research, some of it by the authors themselves. Banerjee and Duflo make the case that measures like this will succeed only if they protect the dignity of the individual beneficiary, who does not want to be treated like a beggar; moreover, floating a welfare scheme alone won’t make people adopt it.

What is also needed is adequate help from the government or the voluntary sector to explain the scheme to beneficiaries or directly help them to access it. And cash transfers, the authors say, should be accompanied with other supporting welfare measures. The authors take an axe to a number of misconceptions and lies that vested interests have spread about the idea of cash transfers. The authors say that where cash transfers have been implemented, the poor have, by and large, not given up working, nor have they become alcoholics or drug addicts.

Over and over again, the authors highlight the effect of the individual and her opinions on economic trends. For instance, fears that migrants take job opportunities from locals is a pressing issue from Paris to Assam. The authors however, write, “... migration seems to make most people, migrants and locals, better off.” They support this thesis by quoting a number of studies from a variety of Western countries. Yet, the authors say that people continue to resent migration into their countries; they are not swayed by facts alone; the reasons for this are psychological. So it is to inform the average world citizen that this book has been written.

The authors mostly avoid bewildering graphs and incomprehensible numbers, but retain rich nuance in their arguments that helps broaden the reader’s way of looking at the issue under discussion. The authors describe specific problems, for instance, herd thinking that leads to social discrimination. The authors also suggest solutions while also explaining the factors that drive it. In short, they teach ways of thinking about socio-economic problems. This is why I bet this book will attract bright young minds to economics.

The authors provide a thoroughly-argued critique of governments’ obsession with economic growth at any social cost, and recommend government intervention to curb unbridled market forces that have failed to ‘trickle down’ wealth to the poor. Banerjee and Duflo argue that such unbridled market force are in fact increasing wealth inequality, besides causing a variety of social and environmental catastrophes.

The authors, in the second half of the book, provide alternative approaches to economic thinking that, they say, can improve the lives of the poor millions. To quote from the book: “The goal of social policy, in these times of change and anxiety, is to help people absorb the shocks that affect them without allowing those shocks to affect their sense of themselves.”

In short, the authors emphasize a welfare approach that boosts the dignity of the recipient. Thus, for those among us who believe the old adage that economics is a ‘dismal science’ that rustles with lifeless variables and yellowed graphs, the authors provide plenty of ‘a-ha!’ moments that cause us to think and engage with the world's pressing problems through a critical lens.

Through this book, the authors also make a strong case that economics is exciting and important for us citizens, that it is possible to understand it, and that a working knowledge of economics helps us make informed choices in personal life and at the ballot box. Therefore, Good Economics for Hard Times is recommended for everyone, and enthusiastically so.