Abhijit V. Banerjee

Esther Duflo

FROM THE WINNERS OF THE 2019 NOBEL PRIZE IN ECONOMICS 'Wonderfully refreshing . . . A must read' Thomas Piketty In this revolutionary book, prize-winning economists Abhijit V. Banerjee and Esther Duflo show how economics, when done right, can help us solve the thorniest social and political problems of our day. From immigration to inequality, slowing growth to accelerating climate change, we have the resources to address the challenges we face but we are so often blinded by ideology. Original, provocative and urgent, Good Economics for Hard Times offers the new thinking that we need. It builds on cutting-edge research in economics - and years of exploring the most effective solutions to alleviate extreme poverty - to make a persuasive case for an intelligent interventionism and a society built on compassion and respect. A much-needed antidote to polarized discourse, this book shines a light to help us appreciate and understand our precariously balanced world.

Better Answers to Our Biggest Problems

Good Economics for Hard Times

Dhrumil Patel

In many developing countries, there are often several missing rungs in the quality ladder of housing. The next thing to a slum might be the nice little flat entirely out of reach.

There is a reason for this. Most third-world cities lack the infrastructure they need to serve their population. According to a recent report, India alone needs 4.5 trillion US dollars in infrastructure investment between 2016 and 2040, while Kenya needs 223 billion and Mexico 1.1 trillion.

Most people do not like risk, and those close to subsistence level especially so, since any loss could push them into starvation. Is that why so many people prefer not to try?

If too many people with a different culture come together, will they assimilate or will they change the culture? Or, for that matter, will they assimilate so well that their culture will vanish, leaving us all with a uniform globalized tasteless blend? A utopia of perfect and instant movement in response to any difference in economnic opportunities might become its own dystopia.

Why poor countries have it hard entering the global market. Having a name can help here.

Florian

The structure of global inequality is such that the kind of customers in the west who would buy a labor-intensive product (for which to produce poor countries have a comparative advantage) are often so much richer than the makers that any savings from a new entrant offering cheaper prices will be insufficient to compensate the customer for their lost time or ruin of a favorite blouse (risk).

Large economies like the US or China have the skills and the capital to produce most things at a very high level of efficiency somewhere in the country. Moreover, their internal markets are large enough to absorb production from many factories in many sectors operating at the appropriate scale. They would lose relatively little by not trading.

TAA to compensate job loss due to free trade.

It took ten years for the salary levels of the retrained and untrained workers to converge. This was thus a worthwhile investment for them, although not one they could undertake without government support, since getting a bank loan for this purpose would have been very difficult.

More generally, much of the hardship caused by trade is related to the immobility of both people and resources. The free movement of goods across borders is not matched by movement within countries.

The overarching takeaway is that we need to address the pain that goes with the need to change, to move, to lose one's understanding of what is a good life and a good job. Economists and policy makers were blindsided by the hostile reaction to free trade, even though they have long known that as a class workers were likely to suffer from trade in rich countries and benefit from it in poor countries. The reason is they have taken it for granted that workers would be able to move jobs or places, or both, and if they were not able to do this, it was somehow their failing. This belief has colored social policy, and set up the con- fict between the "losers" and the rest that we are experiencing today.

Suppose people suspect that others know something (perhaps the train door will open at a particular spot). They would then join the crowd (perhaps at the cost of ignoring their own information that the train is likely to stop somewhere else). But that would make the crowd bigger, and so the next person coming along would see an even bigger crowd and be even more likely to think this conveyed useful information. They might also join the crowd, for the same reason. In other words, what looks like conformity could be the outcome of rational decision making by many individuals with no interest in conforming, but who believe oth- ers might have better information than they. He called it a "simple model of herd behavior."

Social norms act as bonds in communities (mutually beneficial groups) - independent of perceived „correctness“.

It is also true that sometimes individuals feel the need to express intolerance and prejudice (including sentiments they do not actually share) in order to signal fealty to their group. For example, during the Indonesian cconomic crisis, membership in Koran reading groups increascd. The display of intense religiosity was a sign of loyalty to carn a place in a mutual assistance circle." In other contexts, sometimes people keep quiet about racism (and or sexism), or even echo what they hear because they do not want to lose their jobs or valuable i mmiga social connections.

Good Economics for Hard Times quotes

Join the club