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A review by _walter_
Good Economics for Hard Times: Better Answers to Our Biggest Problems by Abhijit V. Banerjee, Esther Duflo
3.0
“The future is already here – it's just not very evenly distributed.”
--Igor Schwarzmann.
3.5 Stars
So, Banerjee and Duflo are two Nobel Price winning “Development Economists”, who set out to explore various contemporary economic issues ranging from immigration, trade, and preferences, to growth, automation, and UBI. Their preferred method for testing various the various theories and for presenting the evidence of their effects/consequences was through the use of RCTs (Randomized Controlled Trails). So that is what you will find here, along with some important omissions as well as their unabashed opinions.
As it stands, I am of two minds about this book. On the one hand, myself lacking formal training in economics, found some of the sections very informative and thought provoking. For instance, when discussing why initiatives sometimes don’t pan out according to economic theory, the authors offer the concept of “sticky economies”. For instance, on the issue of jobs, this refers to the fact that even though jobs may be lost in one area and created in another (due to trade, automation, etc.), thereby netting out (or even gaining) as far as the overall economy is concerned, the effects can still be disproportionally felt in those areas where the losses have taken place. This is because people have all kinds of reasons not to move to where these new jobs are now located: they have families, houses, relationships, etc. Some of them might not be able to afford the move, and others might not be open to retraining. So this creates a flywheel of destitution and despair that is hyperlocal, concentrated, and accelerated. So we have something similar to an economic “inertia” that conspires to ruin the best-laid plans from well-meaning economists. This was a new way to understanding these issues for me, and I appreciate the authors for their clarity in presenting this phenomenon in all its colors. So we see this concept of “sticky economies” over and over as the book progresses through its chapters, in various guises.
The problem that I have with the rest of the book is that either through choice or lack of evidence, the authors have made certain simplifications and downright omissions I cannot simply overlook myself.
Take the issue of immigration. This chapter was extremely well done, that is, if all you really care about are is the rosy side of the story. Duflo and Banerjee present convincing evidence that low-skilled immigrants in fact do more to help the economy and drive up opportunities and wages than the red-hat pundits would have you believe. It is in fact highly-skilled immigrants that have the more pernicious effect. In short, low-skill immigrants create a demand for goods and services while simultaneously increasing the labor supply, while high-skill immigrants increase competition for the better jobs. Well, I bet someone in the Canadian government must have been reading this book when, acting on faith, they opened the gates wide open to immigrants hoping to reap the purported benefits. Ehh, yeah, that didn’t go as planned, considering how just as of this month (November, 2024), Trudeau’s administration has performed an about face and drastically cut down on the number of visas issued. The problem? All of these newcomers need doctors, schools, jobs, houses, daycare, and other social services that were already getting more expensive and harder to come by before their arrival. There are similar stories in Germany, Ireland, Argentina, France, etc. But you won’t hear this from Duflo and Banerjee, in fact, they double down on it in the last chapter.
Ditto for the chapter on Trade. Again, well-done and highly informative for those of us not well-versed in economics. The TL:DR; for this section is that trade tends to benefit poorer countries (high labor supply) more than richer countries (high capital supply). Oh yeah? Well, don’t tell that to Mexico!
For instance, when NAFTA (North American Free Trade Agreement) was enacted in 1994, it was expected that Mexico, as a relatively poorer country with a large labor force, would see a significant boost. Indeed, NAFTA helped Mexico integrate with the U.S. and Canadian economies, boosting exports, especially in manufacturing sectors like automobile and electronics, which provided numerous jobs. Yet, the outcome was mixed due to a few key issues:
1. Income Inequality: While NAFTA created opportunities, the benefits were uneven. Northern, more industrialized regions of Mexico saw more growth and foreign investment, whereas poorer, agricultural areas in the south struggled. Many farmers, especially corn producers, found it hard to compete with subsidized American agricultural products, leading to job losses and exacerbating rural poverty.
2. Job Quality and Wages: While trade increased job availability, particularly in manufacturing (maquiladoras), many of these jobs offered low wages, with few protections or benefits. For many workers, these jobs did not translate into substantial improvements in living standards. Furthermore, increased competition with the U.S. led to wage stagnation in Mexico.
3. Labor Market Impact: While NAFTA did bring jobs, the lack of strong labor protections in Mexico led to concerns about exploitation and poor working conditions. Additionally, the promise of robust job creation didn't prevent many Mexicans from emigrating to the U.S. in search of better opportunities.
In contrast to the simplified view that trade would inherently benefit poorer countries rich in labor, Mexico’s experience suggests that other factors—such as regional disparities, agricultural competition, and labor protections—play a significant role in determining the real impacts of trade agreements. For Mexico, NAFTA's effects demonstrate that while trade can create new markets and job opportunities, it does not automatically translate to broad-based improvements in living standards.
But I repeat myself. These kinds of omissions are rampant in the latter chapters, which I being the forgiving reader that I am these days, chuck up to “expedient editorial choices” rather than malice.
So, at the end we have a book that is very good in presenting the arguments that it ideologically favors, but ultimately incomplete.
Still, it gets my recommendation.
--Igor Schwarzmann.
3.5 Stars
So, Banerjee and Duflo are two Nobel Price winning “Development Economists”, who set out to explore various contemporary economic issues ranging from immigration, trade, and preferences, to growth, automation, and UBI. Their preferred method for testing various the various theories and for presenting the evidence of their effects/consequences was through the use of RCTs (Randomized Controlled Trails). So that is what you will find here, along with some important omissions as well as their unabashed opinions.
As it stands, I am of two minds about this book. On the one hand, myself lacking formal training in economics, found some of the sections very informative and thought provoking. For instance, when discussing why initiatives sometimes don’t pan out according to economic theory, the authors offer the concept of “sticky economies”. For instance, on the issue of jobs, this refers to the fact that even though jobs may be lost in one area and created in another (due to trade, automation, etc.), thereby netting out (or even gaining) as far as the overall economy is concerned, the effects can still be disproportionally felt in those areas where the losses have taken place. This is because people have all kinds of reasons not to move to where these new jobs are now located: they have families, houses, relationships, etc. Some of them might not be able to afford the move, and others might not be open to retraining. So this creates a flywheel of destitution and despair that is hyperlocal, concentrated, and accelerated. So we have something similar to an economic “inertia” that conspires to ruin the best-laid plans from well-meaning economists. This was a new way to understanding these issues for me, and I appreciate the authors for their clarity in presenting this phenomenon in all its colors. So we see this concept of “sticky economies” over and over as the book progresses through its chapters, in various guises.
The problem that I have with the rest of the book is that either through choice or lack of evidence, the authors have made certain simplifications and downright omissions I cannot simply overlook myself.
Take the issue of immigration. This chapter was extremely well done, that is, if all you really care about are is the rosy side of the story. Duflo and Banerjee present convincing evidence that low-skilled immigrants in fact do more to help the economy and drive up opportunities and wages than the red-hat pundits would have you believe. It is in fact highly-skilled immigrants that have the more pernicious effect. In short, low-skill immigrants create a demand for goods and services while simultaneously increasing the labor supply, while high-skill immigrants increase competition for the better jobs. Well, I bet someone in the Canadian government must have been reading this book when, acting on faith, they opened the gates wide open to immigrants hoping to reap the purported benefits. Ehh, yeah, that didn’t go as planned, considering how just as of this month (November, 2024), Trudeau’s administration has performed an about face and drastically cut down on the number of visas issued. The problem? All of these newcomers need doctors, schools, jobs, houses, daycare, and other social services that were already getting more expensive and harder to come by before their arrival. There are similar stories in Germany, Ireland, Argentina, France, etc. But you won’t hear this from Duflo and Banerjee, in fact, they double down on it in the last chapter.
Ditto for the chapter on Trade. Again, well-done and highly informative for those of us not well-versed in economics. The TL:DR; for this section is that trade tends to benefit poorer countries (high labor supply) more than richer countries (high capital supply). Oh yeah? Well, don’t tell that to Mexico!
For instance, when NAFTA (North American Free Trade Agreement) was enacted in 1994, it was expected that Mexico, as a relatively poorer country with a large labor force, would see a significant boost. Indeed, NAFTA helped Mexico integrate with the U.S. and Canadian economies, boosting exports, especially in manufacturing sectors like automobile and electronics, which provided numerous jobs. Yet, the outcome was mixed due to a few key issues:
1. Income Inequality: While NAFTA created opportunities, the benefits were uneven. Northern, more industrialized regions of Mexico saw more growth and foreign investment, whereas poorer, agricultural areas in the south struggled. Many farmers, especially corn producers, found it hard to compete with subsidized American agricultural products, leading to job losses and exacerbating rural poverty.
2. Job Quality and Wages: While trade increased job availability, particularly in manufacturing (maquiladoras), many of these jobs offered low wages, with few protections or benefits. For many workers, these jobs did not translate into substantial improvements in living standards. Furthermore, increased competition with the U.S. led to wage stagnation in Mexico.
3. Labor Market Impact: While NAFTA did bring jobs, the lack of strong labor protections in Mexico led to concerns about exploitation and poor working conditions. Additionally, the promise of robust job creation didn't prevent many Mexicans from emigrating to the U.S. in search of better opportunities.
In contrast to the simplified view that trade would inherently benefit poorer countries rich in labor, Mexico’s experience suggests that other factors—such as regional disparities, agricultural competition, and labor protections—play a significant role in determining the real impacts of trade agreements. For Mexico, NAFTA's effects demonstrate that while trade can create new markets and job opportunities, it does not automatically translate to broad-based improvements in living standards.
But I repeat myself. These kinds of omissions are rampant in the latter chapters, which I being the forgiving reader that I am these days, chuck up to “expedient editorial choices” rather than malice.
So, at the end we have a book that is very good in presenting the arguments that it ideologically favors, but ultimately incomplete.
Still, it gets my recommendation.