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"Why Economists Wrong Things"

  Esther Duflo and Abhijit Banerjee Sharing the 2019 Nobel Prize in Economics with Michael Kremer Copyright
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"Economists always say on the one hand, but then on the other hand ̵
1; says Prof. Esther Duflo, in the photo with her husband Abhijit Banerjee

Economists have been struggling in recent years, with conservative politician Michael Gove famously saying that people got tired of "experts" during the Brexit campaign, labeling them "distant," "inexplicable," and "elitist."

Today, the confidence in economists is slightly above that of politicians.

"Economists always say on the one hand, but then on the other," says Esther Duflo, a professor of poverty reduction and development economics at MIT. (MIT). "That's why people are always looking for a one-armed economist," she jokes, citing former US President Harry Truman's famous comment.

But Prof. Duflo, who recently won the Nobel Prize in Economics, along with his MIT colleague and husband, Prof. Abhijit Banerjee, and Harvard professor Michael Kremer, has surely stepped down from the fence in a new book that falls short. some of the economists myths.

  • Esther Duflo: "The Nobel Prize Will Be a Megaphone"
  • The Nobel Couple Fighting Poverty

In a good economy during difficult times, Professors Duflo and Banerjee struggle to deal with some of the great 21st century challenges and argue that economists are more important than ever in today's polarized world.

What motivates us?

Conventional economic theory does not focus on what people are really interested in, they say. Money matters, but in reality people are more concerned with "purpose, belonging and dignity" than earning a few extra dollars – even when times are tough.

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Conventional theory is about an "economic man" who makes informed, perfectly informed decisions – the reality is very different

This is "a huge blind spot in the economy," Prof. Duflo says, speaking to the BBC, as economists often assume that people will react very strongly to financial incentives.

The conventional economy states that "if you work at a clothing factory in a small US town and that job disappears because of competition from China, you will gather and go the extra mile and take a job selling new clothes in a store," she says.

And it's not just economists. A separate survey of 10,000 Americans by the spouse's team found that 62% of those surveyed thought the unemployed had to move to find a job – even if the job offered was 200 miles away.

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Taily Americans talk to future employers at a career fair, but people are less likely to move than many economists think

Yet, when asked if they would move themselves to work, only 52% said yes. Of the unemployed, only one-third said they were ready to move. In fact, many people do not move even after the factory is closed.

Money plays a role; moving a house can be too expensive or any increase in pay can be eroded by higher living costs, says Prof. Duflo. And the mobility of the US population is certainly diminishing. In 1985, census data showed that nearly 20% of Americans moved home in the previous 12 months, but by 2018, that number had halved.

But there are more compelling reasons not to move, she says. A survey by the Federal Reserve in New York shows that about half of Americans remain attached to where they grew up. This "rooted" group is disproportionately white, older, married and living in rural areas.

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About half of Americans remain attached to where they grew up.

"When bad news comes in the form of more competition from outside, rather than perceiving it and moving resources to the best use of them, it tends to be overcome and hopes the problem will disappear on its own," Prof. Duflo and Banerjee.

'Workers are laid off, retired workers are not replaced and wages are beginning to fall. Business owners are taking a big hit on their profits, credit is being renegotiated, all in order to keep as much of the status quo as possible. "

More merchandise?

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According to economists, tariffs exacerbated the Great Depression in the 1930s

The idea that more trade is good is "deeply rooted" in many economists, says Professor Duflois. For example, when the United States imposed thousands of tariffs on goods in the 1930s, over a thousand economists wrote to President Hoover asking them to veto the bill. Even today, the threat of tariffs sends fluctuations through stock markets.

Yet Professor Dufloff cites studies by MIT scientists Arno Costinot and Andres Rodriguez-Claire, which show that US trade profits are about 2.5% of gross domestic product (

" "The truth is that if the US goes back to ending the autarky [not trading with anybody] it will be poorer. But not so much poorer."

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Economists debate how favorable trade is to the US economy

But not everyone agrees. Douglas Irwin, a commercial historian and professor of economics at Dartmouth College, says US profits from trading in Costinot's research range from 1.8-10.3% of GDP.

"Something like 10% is nothing trivial," says Prof. Erwin. "I would say that historical experience shows that trade reforms in developing countries have improved their economic performance and led to a significant reduction in poverty."

Prof. Duflo says while countries like China have benefited enormously from trade – the experience of other countries has been

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China's economies of scale hinder competition from smaller countries

China has built a reputation for being able to do things cheaply, quickly and reliably – impeding competition from smaller countries such as Ethiopia or Egypt – even as China's standard of living continues to rise.

Higher or lower taxes?

Labor leader Jeremy Corbin has promised to introduce a fairer tax system if he becomes Britain's next prime minister. Labor swore to make the rich pay more taxes, and some party members even suggested there would be no billionaires in the country.

Prof. Duflo says the evidence shows that rich people do not suddenly stop working because of higher taxes, ie. but adds that the taxation of the wealthy itself is no longer required to close the gap between rich and poor – or generate additional income.

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Labor leader Jeremy Corbin wants taxes to be raised for the best workers

"For example, if taxes on people making more than £ 500,000 a year are very high, then companies will not feel the need to pay these very high salaries in the first place – because they just go in anyway. The Treasury. "

But tax cuts are also not the answer. In their book, Prof. Duflo and Banerjee cite the example of the United States, when Republican leaders in Kansas passed a profound tax cut in 2012 in hopes that it would boost the economy. The opposite happened. The state was left without enough money to pay for public services, and staff were forced to shorten the school week to just four days.

Prof. Duflo says higher tax rates should be offset by better services or targeted assistance for those who need it most. "Politicians need to look at policies that will help the person who lost his factory job because he was replaced by robots or because the item is already made in China.

"Unless we have a successful answer to this question, then simply taxing the rich will not help, because it will not make these people less angry. "

Listen to an extended interview with Esther Dufflo in Business Daily on BBC World Service.

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