Good Economics for Hard Times: Better Answers to Our Biggest Problems
by
Abhijit V. Banerjee and Esther Duflo
About The Authors
Abhijit V. Banerjee, winner of the Nobel Prize in Economics 2019, is the Ford Foundation International Professor of Economics at the Massachusetts Institute of Technology.
Esther Duflo, winner of the Nobel Prize in Economics 2019, is the Abdul Latif Jameel Professor of Poverty Alleviation and Development Economics at the Massachusetts Institute of Technology.
About The Book
Is opening up to international trade good for everybody? Do immigrants from poorer countries take away jobs from low-income native workers? Why is inequality exploding everywhere? Does redistribution actually undermine incentives? Should we worry about the rise of artificial intelligence or celebrate it? How do we manage the trade-off between growth and climate change? Is economic growth over in the West? Should we care?
Figuring out how to deal with today’s critical economic problems is the great challenge of our time. Much greater than space travel, perhaps even than curing cancer – what is at stake is the whole idea of the good life and, perhaps, of liberal democracy itself. We have the resources to solve these problems; what we lack are ideas that will help us jump the wall of disagreement and distrust that divides us. Only if we can engage seriously in this quest, and if the best minds in the world work with governments and civil society to redesign our social problems for effectiveness and political viability, will history remember our era with gratitude.
In this revolutionary book, renowned MIT economists Abhijit V. Banerjee and Esther Duflo take on this challenge, building on cutting-edge research in economics, explained with lucidity and grace. Original, provocative, and urgent, Good Economics for Hard Times makes a persuasive case for intelligent interventions towards a society built on compassion and respect. It is an extraordinary book, one that will help us appreciate and understand our precariously balanced world.
Praise for Good Economics for Hard Times
“In Good Economics for Hard Times, Banerjee and Duflo, two of the world’s great economists, parse through what economics have to say about today’s most difficult challenges – immigration, job losses from automation and trade, inequality, tribalism and prejudice, and climate change. The writing is witty and irreverent, always informative but never dull. Banerjee and Duflo are the teachers you always wished for but never had, and this book is an essential guide for the great policy debates of our times.”
Raghuram Rajan, Katherine Dusak Miller Distinguished Service Professor of Finance, University of Chicago Booth School of Business
“Banerjee and Duflo move beyond the simplistic forecasts that abound in the Twittersphere and in the process reframe the role of economics. Their dogged optimism about the potential of economics research to deliver makes for an informative and uplifting read.”
Pinelopi Goldberg, Elihu Professor of Economics, Yale University, and chief economist of the world Bank Group
“Not all economists wear ties and think like bankers. In their wonderfully refreshing book, Banerjee and Duflo delve into impressive areas of new research questioning conventional views about issues ranging from trade to top income taxation and mobility, and offer their own powerful vision of how we can grapple with them. A must-read.”
Thomas Piketty, professor, Paris School of Economics and author of Capital in the Twenty-First Century
“A magnificent achievement, and the perfect book for our time. Banerjee and Duflo brilliantly illuminate the larges issues of the day, including immigration, trade, climate change, and inequality. If you read one policy book this year – heck, this decade – read this one”
Cass R. Sunstein, Robert Walmsey University Professor, Harvard University, and author of How Change Happens”
“ Banerjee and Duflo have shown brilliantly how the best recent research in economics can be used to tackle the most pressing social issues: unequal economic growth, climate change, lack of trust in public action. Their book is an essential wake-up call for intelligent and immediate action!”
Emmanuel Saez, professor of economics at UC Berkely
“One of the things that makes economics interesting and difficult is the need to balance the neat generalities of theory against the enormous variety of deviations from standard assumptions: lags, rigidities, simple inattention, (and) society’s irrepressible tendency to alter what are sometimes thought of as bedrock characteristics of economic behaviour. Banerjee and Duflo are masters of this terrain. They have digested hundreds of lab experiments, statistical studies, and common observations to find regularities and irregularities that shape important patterns of economic behaviour and need to be taken into account when we think about central issues of policy analysis. They do this with simple logic and plain English. Their book is as stimulating as it gets.”
Robert Solow, Nobel Prize-winner and emeritus professor of economics, Massachusetts Institute of Technology
“In these tumultuous times when many bad policies and ideas are bandied around in the name of economics, common sense – and good economics – is even more sorely needed than usual. This wide-ranging and engaging book by two leading economists puts the record straight and shows that we have much to learn from sensible economic ideas, and not just about immigration, trade, automation, and growth, but also about the environment and political discourse. A must-read.”
Daron Acemoglu, Elizabeth and James Killian Professor of Economics, MIT, and co-author of Why Nations Fail
Preface
Ten years ago we wrote a book about the work we do. To our surprise, it found an audience. We were flattered, but it was clear to us that we were done. Economists do not really write books, least of all books human beings can read. We did it and somehow got away with it; it was time to go back to what we normally do, which is to write and publish research papers.
Which is what we were doing while the dawn-light of the early Obama years gave way to the psychedelics madness of Brexit, the Yellow Vests, and the wall – and strutting dictators (or their elected equivalents) replaced the confused optimism of the Arab Spring. 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.
The fact that such a book needs to be written does not mean we are the right people to write it. Many of the issues plaguing the world right now are particularly salient in the rich North, whereas we have spent our lives studying poor people in poor countries. It was obvious that we would have to immerse ourselves in many new literatures, and there was always a chance we would miss something. It took us awhile to convince ourselves it was even worth trying.
We eventually decided to take the plunge, partly because we got tired of watching at a distance while the public conversation about core economic issues – immigration, trade, growth, inequality, or the environment – goes more and more off-kilter. But also because, as we thought about it, we realized the problems facing the rich countries in the word were often eerily familiar to those we are used to studying in the developing world – people left behind by development, ballooning inequality, lack of faith in government, fractured societies and polity, and so on. We learned a lot in the process, and it did give us faith in what we as economists have learned best to do, which is to be hard headed about the facts, skeptical of slick answers and magic bullets, modest and honest about what we know and understand, and perhaps most importantly, willing to try ideas and solutions and be wrong, as long as it takes us towards the ultimate goal of building a more humane world.
MEGA: Make Economics Great Again
A woman hears from her doctor that she has only half a year to live. The doctor advises her to marry an economist and move to South Dakota.
WOMAN: “Will this cure my illness?”
DOCTOR: “No, but the half year will seem pretty long.”
We live in age of growing polarization. From Hungary to India, from the Philippines to the United States, from the United kingdom to Brazil, from Indonesia to Italy, the public conversation between the left and the right has turned more and more into a high-decibel slanging match, where harsh words, used wantonly, leave little scope for backtracking. In the United States, where we live and work, split-ticket voting is at it’s lowest on record. Eighty-one percent of those who identify with one party have a negative opinion of the other party. Sixty-one percent of Democrats say they view Republicans as racists, sexists, or bigots. Fifty-four percent of Republicans call democrats spiteful. A third of all Americans would be disappointed if a close family member married someone from the other side.
In France and India, the two other countries where we spend a lot of time, the rise of the political right is discussed, in the liberal, “enlightened” elite world we inhabit, in increasingly millenarian terms. There is a clear feeling that civilization as we know it, based on democracy and debate, is under threat.
As social scientists, our job is to offer facts and interpretations of facts we hope will mediate these divides, help each side understand what the other is saying, and thereby arrive at some reasoned disagreement, if not a consensus. Democracy can thrive with dissent, as long as there is respect on both sides. But respect demands some understanding.
What makes the current situation particularly worrying is that the space for such conversations seems to be shrinking. There seems to be a “tribalization” of views, not just about politics, but also about what the main social problems are and what to do about them. A large-scale survey found Americans’ views on a broad spectrum of issues come together like a bunch of grapes. People who share some core beliefs, say about gender roles or whether hard work always leads to success, seem to have the same opinions on a range of issues, from immigration to trade, from inequality to taxes, to the role of government. These core beliefs are better predictors of their policy views than their income, their demographic groups, or where they live.
These issues are in some ways front and centre in the political discourse, and not just in the United States. Immigration, trade, taxes, and the role of government are just as contested in Europe, India, South Africa, or Vietnam. But views on these issues are all too often based on the affirmation of specific personal values (“I am for immigration because I am a generous person,” “I am against immigration because migrants threaten our identity as a nation”). And when they are bolstered by anything, it is by made-up numbers and very simplistic reading of the facts. Nobody thinks very hard about the issues themselves.
This is really quite disastrous, because we seem to have fallen on hard times. The go-go years of global growth, fed by trade expansion and China’s amazing economic success, may be over, what with China’s growth slowing and trade wars igniting everywhere. Countries that prospered from that rising tide – in Asia, Africa and Latin America – are beginning to wonder what is next for them. Of course, in most countries in the affluent West, slow growth is nothing new at this point, but what makes it particularly worrying is the rapid fraying of the social contract that we see across these countries. We seem to be back in the Dickensian world of Hard Times, with the haves facing off against the increasingly alienated have-nots, with no resolution in sight.
Questions of economics and economic policy are central to the present crisis. Is there something that can be done to boost growth? Should that even be a priority for the affluent West? And what else? What about exploding inequality everywhere? Is international trade the problem or the solution? What is its effect on inequality? What is the future of trade – can countries with cheaper labour costs lure global manufacturing away from China? And what about migration? Is there really too much low-skilled migration? What about new technologies? Should we, for example, worry about the rise of artificial intelligence (AI) or celebrate it? And, perhaps most urgently, how can society help those people the markets have left behind?
The answers to these problems take more than a tweet. So there is an urge just to avoid them. And partly as a result, nations are doing very little to solve the most pressing challenges of our time; they continue to feed the anger and distrust that polarize us, which makes us even more incapable of talking, thinking together, doing something about them. It often feels like a vicious cycle.
Economists have a lot to say about these big issues. They study immigration to see what it does to wages, taxes to determine if they discourage enterprise, redistribution to figure out whether it encourages sloth. They think about what happens when nations trade, and have useful predictions about who the winners and losers are likely to be. They have worked hard to understand why some countries grow and others don’t and what, if anything, governments can do to help. They gather data on what makes people generous or wary, what makes a man leave his home for a strange place, how social media plays on our prejudices.
What the most recent research has to say, it turns out, is often surprising, especially to those used to the pat answers coming out of TV “economists” and high school textbooks. It can shed new light on those debates.
Unfortunately, very few people trust economists enough to listen carefully to what they have to say. Right before the Brexit vote, our colleagues in the UK desperately tried to warn the public that Brexit would be costly, but they felt they were not getting through. They were right. No one was paying much attention. Early in 2017, YouGov conducted a poll in the UK in which they asked: “Of the following, whose opinion do you trust most when they talk about their field of expertise?” Nurses came first. Eighty-four percent of people polled trusted them. Politicians came last, at 5 percent (though local members of Parliament were a bit more trusted, at 20 percent). Economists were just above politicians at 25 percent. Trust in weather forecasters was twice as high. In the fall of 2018, we asked the same question (as well as several others about views on economic issues, which we make use of at various points in the book) to ten thousand people in the United States. There again, just 25 percent of people trusted economists about their own field of expertise. Only politicians ranked lower.
This trust deficit is mirrored by the fact that the professional consensus of economists (when it exists) is often systematically different from the views of ordinary citizens. The Booth School of Business at the University of Chicago regularly asks a group of about forty academic economists, all recognized readers in the profession, their views on core economic topics. We will often refer to these in the book as the IGM Booth panel answers. We selected ten questions asked of the IGM Booth respondents and posed the same questions to our survey respondents. On most of these issues, economists and our respondents were completely at odds with each other. For example, every single respondent in the IGM Booth panel disagreed with the proposition that “imposing new US tariffs on steel and aluminium will improve Americans’ well-being.” Just over one-third of our respondents shared this view.
In general, our respondents tended to be more pessimistic than the economists: 40 percent of economists agreed with the proposition “the influx of refuges into Germany beginning in the summer of 2015 would bring economic benefits to Germany over the succeeding decade,” and most of the rest were uncertain or did not give an opinion. (only one disagreed). In contrast, only a quarter of our respondents agreed, and 35 percent disagreed. Ur respondents were also more likely to think the rise of robots and AI would lead to widespread unemployment, and much less likely to think they would create enough extra wealth to compensate those who lost out.
This is not because economists are always more in favour of laissez-faire outcomes than the rest of the world. A prior study compared how economists and a thousand regular Americans answered the same twenty questions. They found economists were (much) more in favour of raising federal taxes (97.4 percent of economists were in favour, compared to 66 percent of regular Americans). They also had much more faith in the policies pursued by the government after the 2008 crisis (bank bailouts, the stimulus, etc.) than the public at at large. On the other hand, 67 percent of regular Americans but only 39 percent of professional economists agreed with the idea that CEOs of large companies were overpaid. The key finding is that, overall, the average academic economist thinks very differently from the average American. Across all twenty questions, there is a gaping chasm of 35 percentage points between how many economists agree with a particular statement and how many average Americans do.
Moreover, informing respondents about what prominent economists think of these issues does nothing to change their point of view. For three questions where the experts’ view was markedly different from that of the public, researchers varied the way they asked the question. For some respondents, they first stated, “Nearly all experts agree that…” before posing the question; for others they just asked the question. It made no difference in the answers they got. For example, on the question of whether the North American Free Trade Agreement increased the average persons’ well-being (to which 95 percent of economists answered yes), 51 percent of respondents answered yes if they were provided with the economists’ view, and 46 percent when they were not. A small difference at best. From this, it seems a large part of the general public has entirely stopped listening to economist about economics.
We don’t for a moment believe that when economists and the public have different views, economists are always right. We, the economists, are too wrapped up in our models and our methods and sometimes forget where science ends and ideology begins. We answer policy questions based on assumptions that have become second nature to us because they are the building blocks of our models, but it does not mean they are always correct. But we also have useful expertise no one else has. The (modest) goal of this book is to share some of this expertise and reopen a dialogue about the most urgent and divisive topics of our times.
For that, we need to understand what undermines trust in economists. A part of the answer is that there is plenty of bad economists around. Those who represent the “economists” in the public discourse are not usually the same people who are part of the IGM Booth panel. The self-proclaimed economists on TV and in the press – chief economists of Bank X or Firm Y – are, with important exceptions, primarily spokespersons for their firms economic interest who often feel free to ignore the weight of the evidence. Moreover, they have a relatively predictable slant towards market optimism at all costs, which is what the public associates with economists in general.
Unfortunately, in terms of how they look (suit and tie) or the way they sound (lots of jargon) the talking heads are hard to tell apart from academic economists. The most important difference is perhaps their willingness to pronounce and predict, which unfortunately makes them all the more authoritative. But they actually do a pretty poor job of predicting, in part because predictions are often well-nigh impossible, which is why most academic economists stay away from futurology. One of the jobs of the International Monetary Fund (IMF) is to forecast the rate of growth of the world economy in the near future. Without a whole of success, one might add, despite its team of many well-trained economists. The economist magazine once computed just how far the IMF forecasts were off on an average over the period 2000-2014. For two years from the time of prediction (say the growth rate in 2014 predicted in 2012), the average forecast error was 2.8 percentage points. That’s somewhat better than if they had chosen a random number between -2 percent and 10 percent every year, but about as bad as just assuming a constant growth rate of 4 percent. We suspect these kinds of things contribute substantially to the general scepticism of economics.
Another big factor that contributes to the trust gap is that academic economists hardly ever take the time to explain the often complex reasoning behind their more nuanced conclusions. How did they parse through the many possible alternative interpretations of the evidence? What were the dots, often from different domains, they had to connect to reach the most plausible answer? How plausible is it? Is it worth acting upon, or should we wait and see? Today’s media culture does not naturally allow a space for subtle or long-winded explanations. Both of us had to wrangle with TV anchors to tell our full story (often to have it edited out of what gets shown), so we recognize why academic economists are often unwilling to take on the responsibility of speaking out. It takes a lot of effort to be heard properly, and there is always the risk of sounding half-baked or having one’s careful words manipulated to mean something quite different.
There are of course those who do speak out, but they tend to be, with important exceptions, those with the strongest opinions and the least patience for engaging with the best work in modern economics. Some, too beholden to some orthodoxy to pay attention to any fact that does not square with it, repeat old ideas like a mantra, even though they have been long disproved. Others are there to pour scorn on mainstream economics, which it may sometimes deserve; but that often means they are unlikely to speak for today’s best economic research.
Our sense is that the best economics is frequently the least strident. The world is a sufficiently complicated and uncertain place that the most valuable thing that economist have to share is often not the conclusion, but the part they took to reach it – the facts they knew, the way they interpreted those facts, the deductive steps they took, the remaining sources of their uncertainty. This is related to the fact that economists are not scientists in the sense physicist are, and they often have very little absolute certainty to share. Anyone who has watched the comic TV series The Big Bang Theory knows that physicist look down on engineers. Physicists think deep thoughts, while engineers muck about with material and try to give shape to those thoughts; or at least that’s how the series presents it. If there were ever a TV series that made fun of economists, we suspect we would be several rungs below engineers, or at least the kind of engineers who build rockets. Unlike engineers (or at least those on The Big Bang Theory), we cannot rely on some physicist to tell us exactly what it would take for a rocket to escape the earth’s gravitational pull. Economists are more like plumbers; we solve problems with a combination of intuition grounded in science, some guesswork aided by experience, and a bunch of pure trial and error.
This means economists often get things wrong. We will do so no doubt many times in this book. Not just about the growth rate, which is mostly a hopeless exercise, but also about somewhat more limited questions, like how much carbon taxes will help with climate change, how CEOs’ pay might be affected if taxes were to be raised a lot, or what universal basic income would do to the structure of unemployment. But economists are not the only ones who make mistakes. Everyone gets things wrong. 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.
Besides, there is plenty of good economics around. Good economics starts with troubling facts, makes some guesses based on what we already know about human behaviour and theories elsewhere shown to work, uses data to test those guesses, refines (or radically alters) its line of attack based on the new set of facts, and eventually, with some luck, gets to a solution. In this, our work is also a lot like medical research. Siddhartha Mukherjee’s wonderful book on the fight against cancer, The Emperor of All Maladies, tells a story of combining inspired guesswork with careful testing, and many rounds of refinement, before a new drug gets to the market. A big part of the economist’s work is also like that. As in medicine, we are never sure we have reached the truth, just that we have enough faith in an answer to act on it, knowing we may have to change our minds later. Also like in medicine, our work does not stop once the basic science is done and the core idea is established; the process of rolling out the idea n the real world then begins.
At one level, one could think of this book as a report from the trenches where that research happens: what does the best economics of today tell us about the fundamental issues our societies are grappling with? We describe how today’s best economists think about the world; not just their conclusions, but also how they got there, all the while trying to separate facts and pipe dreams, brave assumptions and solid results, what we hope for and what we know.
It is important that in this project we be guided by an expansive notion of what human beings want and what constitutes the good life. Economists have a tendency to adopt a notion of well-being that is often too narrow, some version of income or material consumption. And yet all of us need much more than that to have a fulfilling life: the respect of the community, the comforts of family and friends, dignity, lightness, pleasure. The focus on income alone is not just a convenient shortcut. It is a distorting lens that has often led the smartest economists down the wrong path, policy makers to the wrong decisions, and all too many of us to the wrong obsessions. It is what persuades so many of us that the whole world is waiting at the door to take our well-paying jobs. It is what has led to a single-minded focus on restoring the Western nations to some glorious past of fast economic growth. It is what makes us simultaneously deeply suspicious of those who don’t have money and terrified to find ourselves in their shoes. It is also what makes the trade-off between the growth of the economy and the survival of the planet, seem so stark.
A better conversation must start by acknowledging the deep human desire for dignity and human contact, and to treat it not as a distraction, but as a better way to understand each other, and set ourselves free from what appear to be intractable oppositions. Restoring human dignity to its central place, we argue in this book, sets off a profound rethinking of economic priorities and the ways in which societies care for their members, particularly when they are in need.
That said, on any single issue we will cover in this book, or perhaps all of them, you may well come to a different conclusion than we do. We hope to persuade you not reflexively to agree with us, but to adopt a little bit of our methods, and share some parts of our hopes and fears, and perhaps by the end, we will really be talking to each other.
Conclusion: Good and Bad Economics
-
…In succession
Houses rise and fall, crumble, are extended,
Are removed, destroyed, restored, or in their place
Is an open field, or a factory, or a by-pass.
Old stone to new building, old timber to new fires,
Old stone to new building, old timber to new fires,
Old fire to ashes, and ashes to the earth…
– T.S. Eliot, New Coker
Economics imagines a world of irrepressible dynamism. People get inspired, change jobs, turn from making machines to making music, quit and decide to wander the world. New businesses get born, rise, fail, and die, are replaced by timelier and more brilliant ideas. Productivity grows in staccato leaps, nations grow richer. What was made in Manchester mills moves to Mumbai factories and then to Myanmar and maybe, one day, to Mombasa or Mogadishu. Manchester is reborn as Manchester digital, Mumbai turns its mills into up-market housing and shopping malls, where those who work in finance spend their newly fattened paychecks. Opportunities are everywhere, waiting to be discovered and grabbed by those who need them.
As economists who study poor countries we have long known that things do not work out quite that way, at least in the countries we have worked in and spend our time. The Bangladeshi would-be-migrant starves in his village with his family rather than brave the uncertainty of seeking a job in the city. The Ghanaian job seeker sits at home wondering when the opportunity he believed his education promised him will drop into his empty lap. Trade shuts down factories in the Southern cone of south America, but few new businesses arrive to take their place. Change seems all too often to benefit other people, unseen people, unreachable people. Those who lost their jobs in the Mumbai mills will not get to eat in those glittering eateries. Perhaps their children will get jobs serving – jobs they for the most part do not want.
What we realised over the last few years is that this is also the story of many places in the developed world. All economies are sticky. There are of course important differences. Small businesses in the United States grow much faster than those in India or Mexico, and those that fail to grow are shut down, forcing their owners to move on. Those in India and, to a lesser extent in Mexico, seem stuck in their place in time, neither growing to be the next Walmart nor exiting into something else more promising. Yet this US dynamism conceals enormous geographical variations. Businesses shut down in Boise and show up in booming Seattle, but the workers who lost their jobs cannot afford to move to Seattle. Nor do they want to anyway, since so much of what they value – their friends and their families, their memories and their loyalties – will have to stay behind. But as the good jobs vanish and the local economy goes into a tailspin, the choices look more and more dire and anger mounts. This is what is happening in Eastern Germany, much of France outside the big cities, the Brexit heartland, and in the red states of the US, but also in large pockets of Brazil and Mexico. The rich and talented step nimbly into the glittering pockets of economic success, but all too many of the rest have to hang back. This is the world that produced Donald Trump, Jair Bolsonaro, and Brexit, and will produce many more disasters unless we do something about it.
And yet as development economists we are also keenly aware that the most remarkable fact about the last forty years is the pace of change, good and bad. The fall of Communism, the rise of china, the halving and then halving again of world poverty, the explosion of inequality, the upsurge and downswing in HIV, the huge drop in infant mortality, the spread of the personal computer and cell phone, Amazon and Alibaba, Facebook and Twitter, the Arab Spring, the spread of authoritarian nationalism and looming environmental catastrophes – we have seen them all in the last four decades. In the late 1970s, when Abhijit was taking steps toward becoming an economist, the Soviet Union still commanded respect, India was figuring out how to be more like it, the extreme left worshipped China, the Chinese worshipped Mao, Reagan and Thatcher were just beginning their assault on the modern welfare state, and 40 percent of the world population was in dire poverty. A lot has changed since then. A lot of it for the better.
Not all the change was willed. Some good ideas just happened to catch fire, some bad ones as well. Some of the change was accidental, some the unintended consequences of something else. For example, part of the increase in equality was the flip side of the sticky economy, which makes it all the more lucrative to be in the right place at the right time. In turn, the increase in inequality funded a construction boom that created jobs for the unskilled in the cities of the developing world, paving the way to the reduction in poverty.
But it would be wrong to estimate just how much of the change was driven bypolicy – the opening up of China and India to private enterprise and trade, the slashing of taxes on the rich in the UK, the US and their imitators, the global cooperation to fight preventable deaths, the prioritization of growth over the environment, the encouragement of internal migration through improvements in connectivity or its discouragement through failure to invest in liveable urban spaces, the decline of the welfare state but also the recent reinvention of social transfers in the developing world, and so on. Policy is powerful. Governments have the power to do enormous good but also important damage, and so do large private and bilateral donors.
A lot of that policy stood on the shoulders of good and bad economics (and the social sciences more generally). Social scientists were writing about the mad ambition of Soviet-style dirigisme, the need to liberate the entrepreneurial genie in countries like India and China, the potential for environmental catastrophe, and the extraordinary power of network connections a long time before these became obvious to the wider world. Smart philanthropists were practising good social science when they pushed for giving away antiretroviral medicines to HIV patients in the developing world to secure much more widespread testing and save millions of lives. Good economics prevailed over ignorance and ideology to ensure insecticide-treated bed nets were given away rather than sold in Africa, thereby cutting childhood malaria deaths by more than half. Bad economics underpinned the grand giveaways to the rich and the squeezing of welfare programs, sold the idea that the state is impotent and corrupt and the poor are lazy, and paved the way to the current stalemate of exploding inequality and angry inertia. Blinkered economics told us trade is good for everyone, and faster growth is everywhere. It is just a matter of trying harder and, moreover, worth all the pain it might take. Blind economics missed the explosion in inequality all over the world, the increasing social fragmentation that came with it, and the impending environmental disaster, delaying action, perhaps irrevocably.
As John Maynard Keynes, who transformed macroeconomic policies with his ideas, wrote: “Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.” Ideas are powerful. Ideas drive change. Good economics alone cannot save us. But without it, we are doomed to repeat the mistakes of yesterday. Ignorance, intuitions, ideology, and inertia combine to give us answers that look plausible, promise much, and predictably betray us. As history, alas, demonstrates over and over, the ideas that remaining open to migration will inevitably destroy our societies looks like it is winning these days, despite all the evidence to the contrary. The only recourse we have against bad ideas is to be vigilant, resist the seduction of the “obvious,” be sceptical of promised miracles, question the evidence, be patient with complexity and honest about what we know and what we can know. Without that vigilance, conversations about multifaceted programs turn into slogans and caricatures and policy analysis gets replaced by quack remedies.
The call to action is not just for academic economists – it is for all of us who want a better, saner, more humane world. Economics is too important to be left to economists.
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