Poverty prize

Abhijit Banerjee, Esther Duflo and Michael Kremer have been jointly awarded the Nobel Prize in economics (or to be more exact, the Sveriges Riksbank Prize in memory of Alfred Nobel) for their experimental approach to alleviating global poverty.  Banerjee and Duflo — a couple both at work and in their private life — are professors at the Massachusetts Institute of Technology, while Kremer is a professor at Harvard University.

Duflo, 46, becomes only the second woman to be awarded an economics Nobel, after the US economist Elinor Ostrom who won the prize in 2009 for her work on human co-operation. She is also the youngest-ever laureate in economics: the previous record was held by Kenneth Arrow, who was 51 when he was awarded the prize in 1972.

The three, who often collaborate in their research, were awarded the prize —— for developing new, experimental research methods to identify the most effective policy interventions to fight poverty through field studies. “Our goal is to make sure the fight against poverty is based on scientific evidence,” Duflo told a press conference. “Often the poor get reduced to caricatures and even those [who] try to help them do not understand the deep roots of what is making them poor . . . We try to address problems as scientifically as possible.”  

The Nobel committee said the trio’s approach had “completely reshaped” development economics, with a clear impact on poverty and great potential to further improve the lives of the worst-off around the world.  An example cited by the committee was their work on the “learning crisis”, which found that providing textbooks would not by itself help children learn more in school, without better and more tailored teaching.

Kremer first ran field studies to explore these issues in Kenya in the mid-1990s, while Mr Banerjee and Ms Duflo later conducted similar trials in two Indian cities, Mumbai and Vadodara. Such field experiments have now become the standard method for development economists, the Nobel Committee said. Their approach mirrors those traditionally used in clinical trials for new drugs; but the Nobel committee noted that as well as testing whether a certain intervention worked, they also investigated why it worked, using contract theory and behavioural economics to understand the driving forces behind people’s decisions.

In some ways, having the prize awarded to development economists who study the issues of poverty or to be more exact, the problems of the poor and why they stay poor, is good news.  It is a move away from awarding the economics prize to neoclassical mainstream economists, usually from the University of Chicago, who have never done any empirical work in their lives, let alone experimental work.  Similarly, it was good news, in a way, when Angus Deaton won the prize for his empirical work on global poverty.  Now the winners are economists who have ‘got their hands dirty’ in field work globally to see the issues facing the poor at first hand.

Alan Kremer started the use of randomized trials to evaluate interventions in the social sciences. He created the well-known economic theory regarding skill complementarities called Kremer’s O-Ring Theory of Economic Development. This argues that workers with similar skills who work together will deliver higher productivity even if the technology is the same.  Perhaps a trivial and simple result, but apparently not obvious before.

Kremer also earlier proposed one of the most convincing explanations for the phenomenon of population growth prior to the early 1970s.  He showed that contrary to Malthus, high population spurs technological change and thus accelerates economic growth. From this work, Kremer has advanced various market incentives to encourage the development of vaccines for use in developing countries.

Duflo is a French economist and her research has focused on microeconomic issues in developing countries, including household behaviour, education, access to finance, health, and policy evaluation. In 2003, she co-founded Poverty Action Lab at MIT, which has since conducted over 200 empirical development experiments and train development practitioners in running randomized controlled trials.

Her partner in crime, Banerjee, co-authored with Duflo, Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty (2011).  Banerjee and Duflo claim that their book lays out a middle ground between “purely market-based solutions” to global poverty, versus “grand development plans.” They advocate the use of observation, using “rigorous randomized controlled testing” on five continents, and most importantly by actually listening to what the poor have to say. From this empirical approach, the authors believe that the best strategies for eradicating poverty can emerge. They believe that small changes can have big effects.

But again, you could say their conclusions are trivial e.g. “income per se matters for education decisions: Jamal will get less education than John because his parents are poorer, even if the income gains from education are the same for both”. This finding, they argue, is important, because if parental income plays such a vital role in determining educational investment, rich children will get more education even if they are not particularly talented, and talented poor children may be deprived of an education.  Surprise!

Banerjee and Duflo also seem to prefer the charter school model in America. They conclude that “these schools have been shown, in several studies based on comparing those winners and losers of the admission lotteries, to be extremely effective and successful. A study of charter schools in Boston suggests that expanding fourfold the capacity of charter schools and keeping the current demographic profile of students the same would have the potential to erase up to 40 percent of the citywide gap in math test scores between white and black children.”  Many will disagree with that conclusion – see https://progressive.org/public-school-shakedown/charter-schools-have-a-big-problem-and-rebranding-wont-help-greene-190509/ and https://teachingmalinche.com/2018/04/29/whats-wrong-with-charter-schools-the-picture-in-california/.

Duflo, Banerjee and Kremer represent an approach in economics based on evidence and field surveys.  That can only be good.  But theory must also be relevant and the big picture cannot be replaced by micro studies.  Back in 2017, In the Richard Ely ASSA lecture, Esther Duflo reckoned economists should give up on the ‘big ideas’ and instead just solve problems like plumbers: “lay the pipes and fix the leaks”. This ignores whether the plumbing is designed properly in the first place. Far from fixing leaks, economists may be trying to stop a flood with a spoon.

Banerjee and Duflo have a new book out next month, called “Good Economics for Hard Times” Juggernaut Books.  The promo says it aims to “show how economics, when done right, can help us solve the thorniest social and political problems of our day.” That’s some claim. The blurb goes on: “Immigration and inequality, globalization and technological disruption, slowing growth and accelerating climate change–these are sources of great anxiety across the world. The resources to address these challenges are there–what we lack are ideas that will help us jump the wall of disagreement and distrust that divides us.” If that is right and they have the answers to the economic, social and political problems of our day using their experimental research that they have done over the last few decades, then they are certainly worthy winners of the prize.

13 thoughts on “Poverty prize

  1. I am somewhat surprised by your reaction to this award. As someone who was trained in development economics and then politics (Berkeley and London) I have always felt that its advantage over other specializations was the accepted view that the problems we faced were very large in scope, global and about capitalism, whether one was a supporter or not. This crowd, otoh, is about micro and so micro that they seem to have lost the forest for the trees. I think this kind of work reinforces the notion of contemplating one’s navel instead of waking up and seeing what is really going on in the world. I continue to look forward, though, to your insights on all things in global finance and economics.

    1. I agree – it’s losing the forest for the trees. In their book, they have a chapter opposing political economy. You need both, it seems to me. A global aggregate approach but also getting down to the nitty gritty where you can. The prize winners are at just at one end

  2. Opposing political economy categorically, if that’s what you mean, should disqualify someone from the award. The dynamics of eco-society aren’t relevant to their work? Are they serious? More specifically alarming to me from your blog entry is their apparently blithe endorsement of charter schools. By now, there is an awful lot of literature and data demonstrating that charters often do no better or worse than the public school systems in which they nest. There is also plenty of evidence that the ones that succeed skim and expel unfairly and sometimes unconscionably. Some of the successful ones in New York, where I live, also employ pedagogical methods that I’m certain the hedge funders behind them would never want for their kids. Plus one other skewing factor: charters understandably attract families looking for an alternative to under-performing public schools. If, as the quotation you included suggests, they have taken the charter movement at face value, I have to wonder about the rest of their work and the assumptions underlying it.

    1. Not to put too fine a point on it, but Marx opposed political economy, not that he would have been slighted in not being considered for an “award.”

      Marx undertakes the critique of political economy, and the critique is fulfilled when political economy, the ideology of capitalism, is abolished by proletarian revolution.

      There is, after all, a fundamental focus in Marx’s analysis and it’s not about getting a “better political economy” or better philosophy or better religion or a better wage-labor system.. It’s about the apprehension of all these areas as alienated expressions, alienated in the commercial sense, of social beings and the replacement of all these by the “free association of producers.”

  3. Is their contribution to understanding the resource allocation decisions of societies important? I’m not convinced. I read economic news regularly. For instance I would award a prize to James Cypher for his book on Mexico, Mexico’s Economic Dilemma. Mexico is a good example of failed economic policy, massive poverty and great inequality. Cypher report is amazingly thorough and rigorously detailed. It shows a specific case of failed economic decisions resulting in massive poverty. Some author, whom I don’t remember right now, claims that $7.40 a day is the median per capita income globally, and in the U.S. the median is around $65 a day. In a world with gaping disparities the research about education seems irrelevant to deepening economic understanding. The authors of Economic Policy Institute’s report “The New Gilded Age”, Estelle Sommeiller and Mark Price, show that 58.7% of the growth in the U.S. since 1973 went to the highest earning one percent. That’s a finding that deserves a prize. Sommellier has two PhDs in economics, I was surprised to learn. But her research is what deserves the prize. To sum up, the Nobel Prize means less after it is awarded to relatively unimportant researchers.

  4. I think we’re on the same page. I hope we are. I may have used “political economy” too broadly to include Marx’s answer to it, meaning his entire method. The micro-economists who won the award don’t even seem to have a method or an outlook or an overarching analytical orientation.

  5. Want to eradicate poverty?

    The MMT Job Guarantee does just that.

    That requires a macroeconomic change, of course, from “invisible hand” neoliberalism in which money’s value is determined in the competitive private sector market place alone, to MMT where money’s value is also measured by socially useful work done in the public sector.

    The Nobel Prize in economics is obviously worse than useless.

  6. “Esther Duflo reckoned economists should give up on the ‘big ideas’ and instead just solve problems like plumbers: “lay the pipes and fix the leaks”. This ignores whether the plumbing is designed properly in the first place.”

    Obviously, Philosopher-Kings and not hired guns should do the design work…

  7. ….”Banerjee and Duflo — a couple both at work and in their private life — are professors at the Massachusetts Institute of Technology, while Kremer is a professor at Harvard University”….

    Massachusetts Institute of Technology and Harvard University ….. are private universities that move billions of dollars for donations.

  8. versus ”grand development plans.” Obviously their code word for socialism, which the Nobel committee so clearly recognised and so richly rewarded!

  9. Is this a deal?
    With T. May, Brussels had negotiated that the whole of Britain would remain in a customs union with the EU until a special agreement on trade in goods between the Republic of Ireland and Northern Ireland had been concluded – indefinitely. This called itself “backstop” and found many opponents in the British Parliament because it contradicted the declared goal of leaving the EU “We want back control!”.
    Now the backstop, which Brussels did not want to do without, was canceled. The new agreement with Johnson stipulates that only Northern Ireland will remain in a customs union with the EU until further notice, so as not to interrupt the close economic ties between the two Irish regions.
    This also contradicts the nationalist claim of the British political class that they (for the whole of the UK) want to regain “control”. Therefore, the outcome of the lower house vote is highly doubtful.
    But this claim to domination “We want back control” was from the outset hollow and illusory.
    First of all, Brussels is not an “over-government” as nationalists from different countries like to think. The EU is a government-level cooperation, and no single EU legislation has yet been introduced against the veto of any EU Member State.
    The British government had as much “control” in Brussels as Berlin, Paris or any other capital city.
    Secondly, it is ridiculous to believe that the exit from the EU would somehow strengthen Britain’s role in the world. The exact opposite is the case. Neither politically nor economically does the British bargaining power in the world improve. This has already proven the whole hiccup around the Brexit. Big muscles are needed in world politics and the world economy – either a powerful army as in the case of Russia or global companies such as the USA and China.
    Anyone who thinks that he can play more than just a third violin inside or outside the EU, only leads his country into insignificance even faster.
    For the wage laborer in the UK, the slogan “we want back control” was just plain scorn. The wage earners have had little to report since the Thatcher period, and leaving the EU will not improve their situation either.

    Whale Buchenberg, 18.10.2019

  10. I’ve seen many vulgar economists in my life, but this is just sad.

    At least the Cold War ideologues were smart in lying and the post-cold war ones are simply imbeciles, but this is the first time I’ve seen the West fielding kids’ stuff.

    Because this is what these “Nobel” winners are: 5th Grade vulgar economics. They are the Greta Thunberg of economics. It would be less humiliating for them to retroactively laureate Stanley Jevons.

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