By Chet Yarbrough
Good Economics for Hard Times (Better Answers to Our Biggest Problems)
By: Abhijit V. Banerjee, Esther Duflo
Narrated by James Lurie
Abhijit Banerjee’s and Esther Duflo’s book, “Good Economics…”, seems like a play book for Bernie Sander’s, and Andrew Yang’s campaigns for President. It is not, but much of what they write resonates with their campaigns.
These two authors are professors of economics at MIT. They received a Nobel Prize in 2019 for their work on an “…experimental approach to alleviating global poverty”. Both are obviously well respected for their research and economics acumen. Professor Barnerjee is a research affiliate of Innovations for Poverty Action. Professor Duflo specializes in Poverty Alleviation and Development Economics. Their credentials speak for themselves.
Now, with the election of President Biden, one wonders if Banerjee and Duflo’s ideas will be tested. The leader of the Senate, Mitch McConnell, is quoted as having said “One hundred percent of my focus is on stopping this new administration”.
McConnell’s comment suggests the poor and lower middle class should be left on their own, a kind of Marie Antoinette view of life.
Sadly, this is a somewhat ponderous work for a layman interested in the future of American prosperity. In the face of supporters of Reaganomics and today’s Trumpist’ “trickle down” economics, a listener hopes for a definitive answer to inequality, rising poverty, and homelessness in the United States.
With the defeat of Trump, a new economic plan is proposed by President Biden. As expected, Republican leadership argues “hands off” on the American economy that appears to be improving without government help.
The concern one may have with a “hands off” approach to a weakened economy is that it offers little hope for those at the bottom of the economic ladder. Those who have a job (namely congress men and women) seem to have little empathy for the poor. It is a view based on belief that the poor are poor because of their failure to take advantage of American opportunity to work and prosper.
Banerjee and Duflo note that a rising tide does not lift all boats. “Trickle down” economics do not work.
Banerjee and Duflo cite several studies that suggest there might be a solution, but the scope and conclusions of the studies seem ill-suited for the largest economy in the world. The authors’ conclusions are based on small social experiments that show mixed results.
On the one hand, self-interest and freedom have made America’s standard of living among the highest in the world. On the other hand, it seems self-interest and freedom mitigate against fairness in the American economy.
The problem is self-interest and freedom have brought out the worst in human nature—greed. Greed has left middle class and poor Americans poorer than they were in the 1960 s and 70 s.
Banerjee and Duflo cite studies of the Reagan years that show wealth became more concentrated with tax cuts for the rich.
Human nature gets in the way of understanding what lower income Americans need to survive Covid19. For the President of the United States to say “It is what it is..” reflects on our lack of empathy for a loved-ones’ death caused by the pandemic.
The Senate drinks from the same trough when they argue the economy is getting better. Over 1,000,000 Americans remain unemployed. It is getting better for whom? Certainly not for restaurant workers, small business owners who closed their doors, or the nurses and teachers who are compelled to go to work despite the risks of a deadly virus. (That is not to mention the children who are going back to congested class rooms with potentially catastrophic consequence for their families and others.)
Trump and the Republican party continue to believe the wealthy will reinvest their wealth to benefit the poor and middle class with jobs.
Job creation benefited the rich after Reagan’s tax cuts. Wages of workers did not increase but the stock market rose, corporate executive salaries skyrocketed, and dividends to stockholders increased. Workers in the middle class and the poor were left behind. Banerjee and Duflo argue that tax cuts for the rich are unfair and they exacerbate the gap between the rich and poor.
The rich get richer; the middle class lives paycheck to paycheck, and the poor remain poor.
Both Banerjee and Duflo infer there is a path to economic equality, or at least fairness. They argue for incentivizing corporate interests for the common good, disincentivizing executive compensation, modifying the federal tax structure, and subsidizing employment for the unemployed (or those who are soon to become unemployed because of technology). They argue that taxes should be increased to create public works programs that benefit the general welfare of the nation.
Banerjee and Duflo go on to suggest a guaranteed basic income (like that proposed by Andrew Yang) should be considered.
Banerjee and Duflo go on to explain how technology reduces jobs.
Environmental concerns reduce jobs.
A guaranteed basic income is to mitigate the hardship of retraining and leaving areas of the nation that cannot sustain economic growth.
Banerjee and Duflo argue that most Americans associate jobs with identity and self-respect. Without a job, Americans lose a part of their identity and self-respect. With a guaranteed basic income, the unemployed will continue to seek employment because of their need for self-respect. As they become employed, their guaranteed basic income could be reduced in proportion to their rising income.
Without income, people are fearful of leaving the areas they have lived in for most of their lives; e.g. a coal camp in Virginia.
The authors cite studies that show economic improvement correlates with worker mobility.
There is a great deal to commend Banerjee and Duflo’s ideas.
Whether the American government is willing to act as a change agent is unlikely without perception of a clear and present danger. Political change comes with perceived threat. The current Senate’s discounting of environmental threat to the world does not bode well for change.
Believing in a “rising tide theory” of economics continues to distort the truth of qualified freedom and unregulated self-interest. Freedom has always been qualified in America. The intent of the founding fathers is to provide freedom for those who do no harm to their neighbors. Unregulated self-interest harms our neighbors.
Banerjee and Duflo offer an economic plan to America, but it is founded on sociological studies that are often small in scope. When the economic theories are tested on broader scales, the conclusions are mixed. Though belief in a guaranteed basic income makes sense in light of the studies shown by Banerjee and Duflo, the impact on American innovation remains unknown. On the other hand, the many jobs the government could create–from public works, to environmental clean-up, to elder care, to medical care, and housing for the homeless–are widely needed in America.
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