“What is dangerous is not making mistakes, but to be so enamoured 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.”
When released in late 2019, “Good Economics for Hard Times” could not foresee the ‘hard times’ that we currently face, however, the work by Nobel prize-winning couple Abhijit Banerjee and Esther Duflo is still quite simply, brilliant. As the title suggests, the book is centred on the idea of ‘good economics’ meaning the use of data, randomised controlled trials (RCTs), and the ability to remove our long-standing beliefs to tackle some of our biggest problems that one can only think have been exacerbated by COVID-19. The book covers pressing issues that permeate throughout our society from climate change to artificial intelligence, immigration to international trade, and economic growth (or lack thereof) to inequality. Whilst not providing a complete roadmap out of all of these, instead, the couple focuses on the data and provide a framework to think about how we can attempt to solve these (literally) life-or-death problems.
I think many economics students are well aware that the models and frameworks we are taught do not always extend to reality and as such, we do not have a framework to think about the aforementioned issues. This is where I believe that the value of reading this book is. Banerjee and Duflo address these issues by using their method of performing RCTs where possible, observing the data, and suggesting practical and achievable solutions. Moreover, they directly challenge ideas presented by Friedman and Keynes to name a few, by looking at why the evidence has not supported the conclusions predicted by these great economists. Often the reasons for this are due to not understanding the roots of issues particularly with regards to international trade, migration, and inequality. One example is that economists have traditionally understated how ‘sticky’ the economy actually is. Specifically, the idea that labour especially does not necessarily flow to where there are higher wages, such is an individual’s reluctance to move away from their home, “unless home is the mouth of a shark”. This ‘stickiness’ also restricts the movement of capital particularly across international borders. They argue that failure to understand the lack of dynamism in the economy has led to ineffective policy or ‘bad economics.’
I could cite dozens of examples that are scattered throughout the book such as the air-conditioning conundrum and its role in climate change, how universal basic income (or some variant) could be implemented and even how our preferences formed. As someone who enjoys hearing about (sometimes unconventional) ideas, Banerjee and Duflo do not leave you wanting more. A couple of stark examples that I found particularly interesting are: economists are not sure what exactly causes economic growth i.e. what total factor productivity consists of in the Solow Model. Further, evidence that migrants do not lower the wages of poor locals (or steal their jobs) because their influx creates extra demand in local economies that offsets the increased supply. Finally, one solution offered by the couple to combat climate change is to tax rich countries to subsidise poor countries for the harm inflicted—the richest 10% emit half of global carbon emissions with poor countries bearing the brunt of the consequences.
Most readers will have a solid grasp of economics and the authors’ explanations are clear and concise. At times the book can be a bit technical but anyone with a first-year understanding of economic concepts should be able to follow along. The book does cover some first-year and second-year macroeconomics topics particularly, the Solow model.
Perhaps the biggest downside to this book is that at times, it feels as if the authors make leaps in their deductions from data—either overstating the importance of their statistics or making sweeping statements that seem a big jump from the evidence presented. In some parts, the book could benefit from more discussion about views that do not fit with the authors’ narrative which would provide greater balance—a missed opportunity in some cases to present a nuanced and sophisticated analysis. Furthermore, the book does attack Trump and his supporters in a tone that does not quite fit with the rest of the book—so depending on your opinions on Trump, it may leave you quite agitated in parts.
To me, these downsides are negligible because of how the book presents the economic discipline and provides a framework to understand and organise your thinking about these major problems. Duflo and Banerjee offer a new perspective on how policy should be viewed and perhaps may even change your world view to some extent. I would highly recommend this book to anyone studying economics (compulsory reading if you are into development economics) as it adds some ‘flavour’ to the foundations laid at school and university. However, Duflo and Banerjee believe that “economics is far too important to be left to economists” as we are at critical juncture in human history and how we respond to the issues we face today (non-COVID) will shape the future of people in all corners of the world—5/5 stars.