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Esther Duflo, winner of the Nobel Prize in Economics, argues that the unequal distribution of wealth in the US economy is under emphasized, even among left politicians.
Esther Duflo, co-recipient of the 2019 Nobel Prize in Economics, is the youngest person ever and only the second woman to obtain the award in that field. Duflo, a professor at the Massachusetts Institute of Technology, shared this year’s honor with her husband Abhijit Banerjee, also at MIT, and Harvard professor Michael Kremer “for their experimental approach to alleviating global poverty,” to quote the Nobel citation.
The trio’s approach involves using randomized control trials to measure the effects of various interventions. “Their experimental research methods now entirely dominate development economics,” stated the Nobel Committee, citing the impact of this research in education and health care in countries including India and Kenya.
The French-born Duflo obtained her undergraduate degree in history and economics, with her thesis focusing on how the Soviet Union utilized propaganda. Her studies and her internships convinced her that “economics had potential as a lever of action in the world.”
After completing a master’s degree in France, Duflo came to MIT for her Ph.D. and has been there since. In 2003, she and Banerjee co-founded the Abdul Latif Jameel Poverty Action Lab at MIT to implement their ideas. Duflo has received a string of awards and distinctions, culminating in the Nobel. Together with Banerjee, she has written Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty, an explanation of their work, and the just-released Good Economics for Hard Times, an engrossing look at the big issues of today.
I drove from Madison, Wisconsin, to Milwaukee in mid-November to meet Duflo at Marquette University, where she gave a talk on the themes of her new book. She graciously gave me time before her presentation, and we chatted in a conference room, bonding over the fact that much of her lab’s work has been conducted in India, including in my wife’s hometown, Udaipur. At her well-attended lecture later that day, Duflo coined a formulation that summarizes her approach to her field: “There are no silver bullets, just a number of silver pellets.”
Q: What difference will winning the Nobel Prize in Economics make for your work?
Esther Duflo: It might be extremely helpful in the sense that it could give us much more visibility and respectability with policymakers. Maybe it also can help in catalyzing our energy and highlighting the problems that we are studying and the methods that we are using to study them.
Q: I had the privilege back in 2010 of interviewing Elinor Ostrom, the first woman to win the Nobel Prize in Economics, and now I’m interviewing you, the second woman to receive the honor. You’re part of a very small club.
Duflo: Ostrom is no more [she died in 2012], so it’s a club of one right now.
Q: Why is economics so male-dominated?
Duflo: I think there are two reasons. One is that the culture is a bit aggressive. I don’t think it set out to be sexist, but it comes out as sexist. Something could be done about it. It’s not that difficult to change the way people behave. The other reason is the topics. It’s not so much the actual topics that they work on, but the perception of what they work on. There are very few women who are students of economics. And, by the way, for minorities, it’s bad, too.
Q: Of course. Professor Banerjee is the third person of color to ever be given the prize.
Duflo: There hasn’t been an African-American Nobel Prize-winner in Economics.
Q: The Nobel Prize in Economics has trended away in recent decades from being awarded to those espousing the free-market perspective.
Duflo: Economics has gone more in that direction anyway, not just focusing on development, but studying all sorts of social issues in the United States: health insurance, inequality, labor markets, and the like. But I don’t think people know that. Usually, the first course people take often discourages them, because it doesn’t get to these things. So I think that should be changed for getting more women and minorities to come in.
Q: I’ve perhaps never read a book that’s as timely as your new work. It deals a lot with what’s currently happening on the U.S. landscape. What are your views about how the Democratic presidential candidates are trying to tackle poverty?
Duflo: I think they are not focused enough on the issue of distribution, of how you are going to help people who are in the type of bottom half of the distribution—not even the extreme poor, just the bottom 50 percent. [These are people] whose salaries have been stagnating for decade, many of whom have lost their jobs and don’t find meaning in the jobs they found instead, or have left the labor market on disability, and so on.
It’s nice to have a focus on raising taxes, the wealth tax and in general, but I think there should be a much more creative way to think about what to do with the money. The system we have now is very inefficient. There is more urgency needed in thinking about how we are going to transform social protection so it’s not seen as something for losers but as an effective compensation for the shock that people have received and on ways to get people out of that situation and back on their feet. And so I wish they focused a bit more on that.
Q: OK, but they have been focusing on something you’re really passionate about in the book, which is climate change, with the Green New Deal proposal.
Duflo: Not that much. The Green New Deal is something that’s coming more from Alexandria Ocasio-Cortez. It’s surprisingly not caught on in the policy conversation in the United States. This is a bit in contrast to the United Kingdom. When I was in the U.K. a week ago, despite the whole Brexit thing, the country was obsessed with climate change. When the Green New Deal came out, it was prominent for a bit, and then it kind of went away. Unfortunately, we’re right now only talking about impeachment.
Q: Now that you’ve mentioned impeachment, may I ask your opinion about President Donald Trump’s economic policies?
Duflo: I think he came into power because he powerfully harnessed a sense of unfairness—the experience of 50 percent of the population. At the same time, of course, he’s delivered nothing to them. But he still kind of embodies the hope that at least someone respects them. I think it is the fault of the Democrats that they have lost the place where they should be the one who are trusted to respect the bottom 50 percent of the income distribution in this country. So I think that’s kind of why he came to power.
Q: Much of the left, including The Progressive, has had a critique of free trade. You partly validate that by pointing out that there are negative effects of trade on the poor, and that this may have led to Trump’s rise.
Duflo: We’ve done the leftwing critique of trade for the simple reason that people are much more immobile than we give them credit for. And, therefore, when there is a trade shock in an area, if people don’t leave, then the whole area kind of collapses. It’s not an abstraction. It’s not the average abstract worker whose wage goes down a little bit. It’s a specific person who works in a specific factory who gets thrown out, and that’s the opposite of the way that economists have been thinking.
We need to take the cost of this transitioning into account, because people literally die as a result of losing that job. But the problem is, if you stop trade, then a whole bunch of other transitions have to take place. It’s going to make some other set of people, the farmers or whoever, worse off. So that seems like the wrong way to get at it.
“It’s not an abstraction...It’s a specific person who works in a specific factory who gets thrown out, and that’s the opposite of the way that economists have been thinking.”
The right way to get at it is to go to the people who have been hurt and recognize that they are paying individually for the choice of society. We have been really lousy at compensating people, and not helping them with transitions. So the takeaway is that you shouldn’t shut down trade and make another lot of people miserable but that you should really ramp up the effort to help people who have been displaced. And that also applies to automation and other forms of displacement.
Q: My roots are in India and my home is here in the United States, and both currently have leaders, Narendra Modi and Donald Trump, respectively, who have come to office in large part because of the power of group identification. You talk so well about group identification in your book and the way people often divide themselves into in and out groups. How do we get people out of this mindset?
Duflo: On the positive side, what we describe in the book is that this in-and-out identification is often not that deeply held. So sometimes when you see people’s intensity of reaction, you might think, “My God, they must really have this visceral thing that must have been with them forever.” But these are things that are actually not that hard to change. So expose kids to kids of another group, and then they become more willing to engage with them.
In politics, if you make people aware of where their self-interests lie, then they are less likely to automatically vote for their type. They have lost so much trust in the solutions that are proposed to them that they have moved to identity. So I think we need to start by again going back to economics. Then we can move to having much more reasonable conversation about everything else.
Q: What was the motivation behind starting the Abdul Latif Jameel Poverty Action Lab at MIT?
Duflo: We realized that the whole business of convincing policymakers to do randomized controlled trials [the method of experimentation for which Duflo and Banerjee are known], or to take the results of them seriously, was kind of another full-time job. And so we decided that it would be very good to have an organization that was a backbone to support a network of researchers working with these methods. At the time, we had a bit of leverage with MIT, so we used it to get started with this project.
Q: What are the most significant real-world experiments that the lab has done?
Duflo: I think more significant than any individual project is the emergence of a movement, and I do think that the Nobel Prize really organizes that movement. There is a whole ecosystem that’s been created on top—a kind of a sister NGO called Innovations for Poverty Action that was started at the same time. And that has a staff of 500 or 600 worldwide, and tons of projects. That’s the most important thing: spotlighting issues of international poverty, and, within that, on actionable items and concrete policy guidance.
Q: Let’s get into one of the critiques that have been made of your work—that you are addressing the symptoms of poverty and not the root causes.
Duflo: The issues of context or what happens when you scale up are good, well-defined, empirical questions, but the question of whether we address the big questions, that I find annoying. There is almost a revolutionary version of this criticism that you have both on the right and on the left. You shouldn’t do anything to make people’s lives better because that’s going to stop the revolution—that’s the leftwing version. Or, it’s going to prop up a dictator—that’s the rightwing version.
I’m a progressive. I’m not a revolutionary. I want to make progress. And so much progress can be done on people’s lives, here and now, without waiting for the revolution or waiting for the free market to solve the problems of the world. I say to these people: “Give me a convincing path to get to wherever it is you want to go.”
Q: There are ethical concerns some raise about your work, such as the possible effects of socioeconomic experiments carried out on actual human beings.
Duflo: Everything we do is approved by ethics boards in the United States and in the country where it’s done. There are pretty clear guidelines of what’s acceptable and what’s not. As long as you don’t subject people to something that’s going to hurt them, it’s perfectly acceptable to randomize. Otherwise, there would not be medicine.
Another thing that people say is, “Oh, you don’t get informed consent.” That’s plainly not true because we do have informed consent. Before an experiment, people know what the experiment is about and what we are trying to find out. They can decide not to be part of it. So there are limits that come from the ethics guidelines.
Q: Where do you go from here after winning the Nobel?
Duflo: It’s been a whirlwind. We’ll try to take some time off to think about how we can make use of this moment to make a dent in something big again.