Good Economics for Hard Times - A Book Report and Summary of key points

Good Economics for Hard Times - by Abhijit V. Banerjee  (Author), Esther Duflo (Author) 2019. The authors are husband and wife. They shared the 2019 Nobel Prize in economics for their experimental approach to ending world poverty. They have studied the problem of poor economics around the world for decades. This book is a great collection of research and ideas that shows us how to better manage the resources of the planet. They are well versed in behavioral economics - the latest research approach. And they are well aware of our human foibles with politics and tribal gut responses. 

This is an extraordinary book. If you are an elected official and you stumble on this note - I will buy you a copy of this book if you promise to read it. These two economists have actually figured out how to FIX some small part of the world. This is not a "theory" - the things they put forth come from the field of behavioral, experimental economics. All economists craft theories about how things work. A few actually experiment, trying things out in controlled studies to better understand the decisions that individuals and groups make in their economic world. 

Normally, when I read an interesting book, I make notes of key things, just to try to remember them. It helps me hold on to them. For you, dear reader, I have reduced my notes to a kind of summary of the key points of the book. I make no citations or claims of accuracy. If you want to see the research behind these assertions - buy the book! Please buy the book. If enough of us actually understand this stuff, we may have a shot at changing things. Thanks 

We live in an age of polarization.
We are all divided these days. We no longer discuss and compromise - we just sling mud at each other.  81% of people who identify with one political party have a very negative opinion of the other party. Republicans are racists, sexists, bigots. Democrats are "spiteful" - what does that mean?

Civilization as we know it is at risk.
Surveys show that most people think that the whole idea of democracy and open ideas and debate is under threat.

Our opinions are based on personal values - not rational thinking.
We choose our positions based on a value judgement, and ignore any evidence to the contrary. When we do cite sources, they are simplistic and biased. No one really thinks hard about issues.

All of our measures are about income and wealth. We see everything as a competition, and the world is trying to get ours.
Because of this world view, economists, leaders and the general public generally make bad decisions. We think that the whole world is waiting across the border to rush in and take our jobs and our way of life. The simple fact is that most people stay home - they are "sticky". Studies show that they will generally not travel to the nearest town to find a better job, let alone leave their country. There has to be immense pressure before they will depart their home.

We need to get back to the idea of treating others with dignity and respect - not for their income and wealth.
Every human desires dignity and respect, and human contact. If we can work on that basic value for all persons, we can rethink our economic and political priorities, and make some progress. Our most important decisions are how society cares for all of its members - especially those in need.

We see immigration as a threat, because we think people are coming here to take our share. There is only so much to go around, and if they come here, we will lose out.
We think, and our fearless leader thinks, that economics is a zero sum game. If the migrants get ahead, the rest of us have to lose. This is simplistic thinking at its worst. Some people are in such terrible situations that they simply MUST leave home. It is pretty amazing that more of them do not leave.

There is NO credible evidence that large inflows of low-skilled immigrants hurt the local population. That is true even at the lower level of job categories. Influx almost always grows the economy and creates opportunities. Our labor market is nothing like the old standard supply and demand.

People generally only leave their homes because it is impossible to remain there. 
The government has collapsed, war and torture and murder are the norm. They are personally threatened or persecuted. Most people will stay home as long as they possibly can. When Nepal's agriculture failed, most people did not flee the countryside because they could not afford the trip. Violence is what drives people to leave. They no longer have a home to return to.
Between 2010 and 2015, the height of the Greek economic crisis, fewer than 350,000 Greeks moved to the EU - about 3% of the population. And as members of the EU they had NO border to cross.

We think that when immigrants come, they depress the local wage market, especially for low paying jobs. The evidence suggests that even large bouts of in-migration have very little negative impact.

Immigrants generally raise the economic level - they do not depress it.

• A report by the Center for American Entrepreneurship found that, in 2017, out of the largest five hundred US companies by revenue (the Fortune 500 list), 43 percent were founded or co-founded by immigrants or the children of immigrants. Moreover, immigrant-founded firms account for 52 percent of the top twenty-five firms, 57 percent of the top thirty-five firms, and nine of the top thirteen most valuable brands.36 Henry Ford was the son of an Irish immigrant. Steve Jobs’s biological father was from Syria, Sergey Brin was born in Russia. Jeff Bezos takes his name from his stepfather, the Cuban immigrant Mike Bezos.

The only common quality of these successful immigrants is that they were a bit braver about taking risks. They were not smarter, not stronger. We find so many successful entrepreneurs among immigrants because they took the risks needed to survive and moved.

An influx of migrants increases demand for labor at the same time as the supply arrives. That is one reason why wages do not go down. Supply and demand is not a very good model of how labor markets work. 

The authors think we do not have enough international migration.

More international migration would deliver clear benefits to both sides. Most people are simply unable or unwilling to move - within their own country, let alone outside.

Helping new immigrants is the best way for them to become productive members of our economy, and to help it thrive.
Housing assistance, mentoring, job placement, training. This would encourage more people to make the trip, benefiting them and their host economy.

International trade is not a threat.
On the long haul, international trade works to our benefit. It's called the "law of comparative advantage". Look it up! If anyone can make something comparatively better, or comparatively cheaper than we can, then we all profit. Taxing trade (tariffs) is simply bad economics. There are transition issues where workers need retraining, or industry segments need to adapt - and we should provide transition help for those - most European nations have that well in hand by now. Blocking trade to avoid these problems is just expensive on both sides. 

• Economists mostly talk about the gains of trade. The idea that free trade is beneficial is one of the oldest propositions in modern economics. As the English stockbroker and member of Parliament David Ricardo explained two centuries ago, since trade allows each country to specialize in what it does best, total income ought to go up everywhere when there is trade, and as a result the gains to winners from trade must exceed the losses to losers. The last two hundred years have given us a chance to refine this theory, but it is a rare economist who fails to be compelled by its essential logic. Indeed, it is so rooted in our culture that we sometimes forget the case for free trade is by no means self-evident.

Instead of seizing new opportunities, we tend to hunker down and hold on. 

When we face competition from outside, we generally retreat - rather than trying to move forward or pursue other opportunities. We are generally conservative in that way. . 

• Given these various forms of stickiness, it is plausible that when bad news arrives in the form of greater competition from outside, instead of embracing it and moving resources to their best possible use, there is a tendency to hunker down and hope the problem will go away on its own. Workers are laid off, retiring workers are not replaced, and wages start to drift down. Business owners take a big hit on their profits, loans get renegotiated, all in order to preserve as much as possible of the status quo ex ante. There is no improvement in efficiency, just a fall in the earnings of everyone associated with the industries that lose their protection.

The U.S. economy is so large that international trade of any magnitude has a very small overall impact. But individuals can be negatively affected.
We need to address the localized pain that trade imposes - retraining and moving, if only to encourage the return on that investment that we will gain. Workers do not easily move - they need assistance.

THOSE people will never integrate - they need to go home!
Ben Franklin thought the Germans should be barred. The Chinese were feared. And then the Irish, lord help us all. Italians and Greeks - what will become of us. In 1920, I have a census page which shows that 80% of the households in northern MN spoke something other than English at home.

• And yet each wave of immigrants eventually was accepted and assimilated. The first names they chose for their children, the occupations they ended up in, the way they voted, and what they bought and ate converged with those of the local population. In turns, the locals adopted the once-foreign first names and foods: Rocky is an American hero and pizza is one of the five basic food groups.

Xenophobia is not a permanent condition, but the price can be horrendous.
We should be very concerned about our xenophobes, because of the terrible history they have wrought in the past. The Belgian colonialists created the fiction of "superior" Tutsis and "inferior" Hutus to secure allies in governing. The horrific genocide of 1995 was the result.

Our whole concept of democracy is at risk, if we cannot somehow learn to listen to each other and cooperate. This is not post WW I Germany, but our fearless leaders are making us feel that we are all at risk.

• As we lose the ability to listen to each other, democracy becomes less meaningful and closer to a census of the various tribes, who each vote based more on tribal loyalties than on a judicious balancing of priorities. The biggest coalition of tribes wins, even if its candidate is a known child molester, or worse. The winner does not need to deliver economic or social benefits even to his own supporters as long as the supporters worry enough about the possibility of takeover by the other side; knowing that, he or she will do their best to stoke those fears. In the worst case, the winner can then use the power gained in this way to take control of the media to shut down any alternative voice, so there is no more competition to worry about. 

Summation

An excellent book - you should read it. But they really do not offer any solution to this mayhem. I think it is beyond the realm of economics to actually understand just how humans operate. I remain hopeful that we will eventually understand how our brains operate - or do not. See this prior piece for more on that. https://carlscheider.blogspot.com/2020/05/identity-politics-tribal-politics.html

Hang in there. I'm pulling for you - and we really are all in this together. If you aren't doing your part, we aren't going to make it.