Nobel thoughts

It is rare that authors of a book one is reading, with an interview scheduled with one of the co-authors, win the Nobel Prize. In that the sense, reading Good Economics for Hard Times: Better Answers to Our Biggest Problems and the following conversation with Abhijit Banerjee — edited excerpts of which were published in this newspaper on October 22 — was a unique experience for this writer. Mr Banerjee and Esther Duflo, along with Michael Kremer, were awarded the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel this year “for their experimental approach to alleviating global poverty.” The approach was captured by Mr Banerjee and Ms Duflo in Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty (2011), which was awarded the Financial Times and Goldman Sachs Business Book of the Year Award. Although their work has been criticised by several economists, it has influenced policymaking and improved the understanding of poverty in general. For instance, the publication of Poor Economics convinced people about the distribution of bed nets to the poor. Globally, between 2014 and 2016, over 500 million insecticide-treated nets were delivered. According to one estimate, net distribution helped avert about 450 million deaths from malaria between 2000 and 2015.

Good Economics for Hard Times has a much broader canvas and covers globally important public policy issues, such as trade, immigration, environment and, of course, economic growth. In the context of trade, the popular wisdom is that it generates large gains and benefits everyone. Both tariff and non-tariff barriers have been brought down over the decades. However, there has been a backlash against trade in recent years. The world’s largest economy, the United States, has turned protectionist and is involved in an ugly trade war with China, which has increased risks for the global economy.  Mr Banerjee and Ms Duflo show that reallocation of labour doesn’t occur as desired   from industries that are hit by trade to other businesses and people end up losing jobs. More importantly, the authors note: “…the aggregate gains from trade, for a large economy like the US, are actually, quantitatively, quite small. The truth is, if the US were to go back to complete autarky, not trading with anybody, it would be poorer. But not that much poorer.” It is not hard to argue that most economists and policy analysts would disagree with this. If large economies, such as the US, shut themselves for trade, it would affect investment and growth all over the world and everyone is likely to be worse off.

The authors have touched upon several policy-related issues in India. For instance, Delhi is currently battling severe air pollution with no permanent solution in sight. One of the suggestions mentioned in the book is that people of Delhi can pay farmers in neighbouring states to not burn crops and use better technology. There are a number of other things that need to be done to contain pollution as crop burning is one of the many reasons. Mr Banerjee and Ms Duflo rightly note that despite the urgency, political demand to address the issue is not overwhelming. The Supreme Court recently intervened in the matter. Part of the problem is that solutions require a lot of people to cooperate. Another interesting issue that finds space in the book is the desire for government jobs in India. Authors note that if such jobs are made not so desirable, the economy would gain from productive labour that is wasted in trying to get into the government. Young people prepare for years to get a government job.  Mr Banerjee and Ms Duflo suggest that the government can limit the number of times an individual can apply and make cutoff age more stringent. These are suggestions worth considering, though part of the problem is that India is unable to create enough gainful employment in any sector to absorb its rising workforce.

One of the things that made headlines soon after the announcement of the Nobel Prize was Mr Banerjee’s engagement with the Congress party on the Nyuntam Aay Yojana in the run-up to the 2019 Lok Sabha elections. Predictably, it acquired political colour in no time. However, the book has a more nuanced take on the issue of basic income. Mr Banerjee and Ms Duflo argue that there are good reasons for considering basic income in developing countries, and money to fund such a programme will initially need to come from existing subsidies. The level of income support that poor countries can afford would be ultra-basic. While the authors are in favour of universal ultra basic income (UUBI), they acknowledge that there is no data on its long-term impact. The idea of UUBI is appealing, but the problem in a country like India is that governments are prone to implementing new programmes without cutting expenditure on the existing ones. This is exactly what has happened with the income support programme for farmers. Good Economics for Hard Times raises several such issues and provides plenty of evidence to build arguments. This is not a book that people interested in public policy should miss. Readers in India would find it particularly engaging as policy issues facing the country figure prominently.

Good Economics for Hard Times: Better Answers To Our Biggest Problems

Abhijit Banerjee and Esther Duflo 

Juggernaut; 416 pages; Rs 699