A review of Abhijit V. Banerjee and Esther Duflo, Good Economics for Hard Times (New York: Pubic Affairs, 2019). 402 PP. No illus. Or maps.
The day I purchased Good Economics for Hard Times, I picked up the Wall Street Journal and read this front-page headline: “Jobs Cap Decade of Steady Gains” (Jan. 11-12, 2020).
Steady jobs gains are not signs of “hard times.” So does the fact that we now live in what may reasonably be thought of as easy times mean this book is wrongheaded?
As it turns out, no. “Good” economics work in bad times and good alike, and this is a very good economics book, reminiscent of John Kenneth Galbraith’s landmark The Affluent Society of 1958. Both are clear and vigorous in argument, readable, and directed at the macroeconmic questions that are in the headlines.
Abhijit V. Banerjee and Esther Duflo, who are professors of economics at M.I.T. and winners of the Nobel Prize, make telling arguments, especially, on (1) immigration, (2) trade, (3) universal basic income, and, (4) economic growth. Here are brief points to show what I mean about all four.
First, immigration creates jobs (as well as threatening them sometimes). The new arrivals in the U.S. will eat at cafes and purchase food and clothing and thus create the need for workers.
Second, popular opposition to free trade simply “blindsided” professional economists, and they have learned that free trade causes inequality to go down in poor countries but up in rich ones. The authors explain why.
Third, universal basic income is the pet solution of Silicon Valley, where technocrats think that their products will revolutionize labor and put great masses of people out of work.
Fourth, put bluntly, economists simply cannot prove what policies increase economic growth. But its decline in 1974 after a full generation of spectacular numbers after World War II spooked politicians who are anxiously fearful that they might somehow kill it.
There are many more arguments than these, and this is an important book to read from cover to cover—as important as Galbraith’s for an earlier generation. Still, CCL members will naturally turn first to Chapter VI “In Hot Water,” about the economics of climate change policies.
At this point, we should return to our initial doubts about the title of this book. Duflo and Banerjee are self-described “economists who study poor countries” (p. 323). Are they the right economists to explain rich countries like the United States? What makes them so pessimistic about climate change policy? “Our sense,” they say, “is that there may not be . . . many free lunches. Mitigation through better technologies may not do the trick; people’s consumption will need to fall. We may have to be content not only with cleaner cars but also with smaller cars or no cars at all.” (p. 317).
It really is not clear from their rather brief chapter on the subject how focused they are on the problems of climate change. The chapters on climate change and on government are the shortest in the book; the climate chapter is less than a third the length of the chapter on economic growth.
It is important, even for CCL members, to read all the chapters in the book. The overall message of the book is that the policies that control economic growth are so little understood even by professional economists that society can afford to ignore the politicians’ anxieties about growth and press ahead with practical solutions to particular problems that economists understand better. That is why it is important to remember that these are not really hard times. The policies that will mitigate climate change—especially and most efficiently a carbon tax—will not be easy to sell in genuinely hard times. It is widely believed that the Great Recession of 2008 undermined the last major effort to attack climate change in the U.S. Congress, the Kerry-Graham-Lieberman cap-and-trade bill. Politicians remember failed legislative initiatives and have no desire to go down similarly doomed paths. That is why it is important to act now, in these relatively easy times. And in doing so—thanks to Banerjee and Duflo—we need not be haunted by exaggerated anxieties about economic growth.
Mark E. Neely, Jr.
Member, State College chapter of Citizens’ Climate Lobby