Book review: Good Economics for Hard Times

In late 2019, I reviewed Abhijit Banerjee and Esther Duflo's 2011 book Poor Economics. At the time, they were the latest Nobel Prize winners in economics (along with Michael Kremer). They also had a new book out at that time, Good Economics for Hard Times, which I passed over in favour of reading their earlier book, which was more closely based on their own research.

I've now read the more recent book, and like their earlier work, Good Economics for Hard Times is clearly written, well researched, and full of genuinely interesting insights. This is important because, as Banerjee and Duflo write in the introduction:

...it seems a large part of the general public has entirely stopped listening to economists about economics.

One can only hope that the general public would pay attention to this book, but sadly I fear that would not be the case. Banerjee and Duflo's solution, though, is as follows:

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 economists have to share is often not their conclusion, but the path 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 uncertainly.

That is the formula they follow in this book, including consideration of the costs (and not just the benefits) of international trade, the puzzle of why migration is so low, the sources of economic growth, the economics of climate change, and the rise of automation. These are the big issues of our times, along with inequality, about which they write:

Once again, this underscores the urgent need to set ideology aside and advocate for the things most economists agree on, based on the recent research. In a policy world that has mostly abandoned reason, if we do not intervene we risk becoming irrelevant, so let's be clear. Tax cuts for the wealthy do not produce economic growth.

That's the sort of clear statement (and advocacy for a particular normative position) that is missing from a lot of academic writing. However, while Banerjee and Duflo are excellent on laying out the research on particular issues, the book is noticeably light on solutions. I think this book would best be read in concert with a book that has solutions, but is much lighter on evidence, such as Mariana Mazzucato's Mission Economy (which I reviewed here). The combination of those two books, along with a bit of thoughtful filling in of the gaps, would provide an excellent outline of the problems, the evidence, and a prescription for the future.

We need some new inspiration to tackle the challenges that we face, and the solutions will involve some uncomfortable tradeoffs. We are vulnerable to politicians and policy advocates who try to sell us on ideas of change that come without associated costs. They should be resisted. As Banerjee and Duflo note in their conclusion:

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.

I interpret that as saying that we don't need a new economics. We need to properly apply the tools of the economics we already have, and listen to the lessons it provides. And that in itself is a lesson worth listening to. Recommended!