Thread by @DinaPomeranz

Wonderful interview with Nobel Prize winner Esther Duflo. Will summarize some quotes in a thread:

"I became an economist because I wanted to make the world a better place. I was an undergrad student in history & only decided to do econ when I realized that economists have this wonderful position that they can take time to study problems deeply & then talk to policy makers."

"Economics is the study of how people react to the economic environment, what makes them tick, what is important to them. So it's very much a social science. It's a social science that has its own approach but that is very much inspired by the other social sciences."

"For a long time economics has been dominated by big ideas and theory, without as much attention on the facts. [...] This has very much been changing over the last 20 years, but this change has not yet been communicated to the broader public or to politicians."

Question: do you think it is possible to solve the problem of human poverty?

"Not only is it possible, but we have already made considerable progress in the last 30 years. The number of extremely poor people has been halved, infant and maternal mortality have been halved."

"The number of deaths from malaria also plummeted, even the deaths from HIV. The number of kids who go to school. etc.

This is a testimony to the fact that some countries grow fast. But not only."

"Even in countries that remain quite poor, such as Malawi, where GDP per capita did not go up, the quality of life of the poor has nonetheless improved, because of a policy focus on these issues of human welfare."

"There are countries with very different GDP per capita, like Norway & US, or Sri Lanka & Guatemala. Their human welfare is very different. Child mortality is much lower in Norway than the US. In Sri Lanka, it's almost at the level of the US & it's much better than in Guatemala."

"GDP is not the end. It's a means to an end.

Also, growth is often outside the control of local politician, because it's hard to know what kind of policies are going to change growth.

But what is in the control of politicians is a focus on human welfare."

Discussing economic changes in high-income countries:

"We are experiencing some changes similar to the industrial revolution. Periods of disruption. Where there were great changes that improved things a lot in the long-term, but not without enormous amount of pains & suffering."

"We seem not to have learned since then how we ought to help people dealing with this transition.

In Victorian times, we considered the poor to be a priori suspicious of being lazy & needing to be punished for needing help. Today we are very much operating under the same model."

"The notion that people should just pick up & move if opportunities change, and that it's their fault if they don't, is a complete misunderstanding of economics.

People are stuck in place not because they are lazy or lack imagination. But because of material & personal factors."

Some material factors:

"It's very difficult to move when your child care depends on your extended family and there's no public child care. When housing in the city where the jobs are is incredibly expensive. When you have a mortgage but the local housing prices have collapsed."

"Second, economic models have historically relied on the idea that people are very sensitive to financial incentives and that's what they are the most sensitive about. But in fact there are many other things people care about. Dignity, sense of purpose, making a difference, etc."

"We all derive meaning from a job well done and a job that is meaningful. That is true for me that is true for you that is true for the furniture worker."

"Suppose you've been doing this job for 20 years & you've become foreman. Then the company goes away.

Even if you could get a job selling furniture as an entry level position or being security guard at a furniture store. That's not giving you back your dignity or status in life"

"It's a huge cost.

People also deeply care about is friends, relationships & status in community. There's a huge epidemic of loneliness.

If the jobs go, people are supposed to go, all alone, and start again from scratch? Economists have not paid enough attention to that."

"We of course see migration. But it's actually a minority.

What's very surprising about migration flows is not how high they are, but how low they are. E.g. in the European Union, with free mobility, even in the face of huge shocks like the Greek crisis, Greeks mostly stayed."

"Some people do move. These people tend to be super enterprising & take jobs that nobody wants.

It's not a surprise that as a result a lot of successful entrepreneurs are migrants or children of migrants. Because they're the type of people who choose to pick up & make a living."

"But that's actually a minority. We cannot count on everybody to have this entrepreneurial spirit in them.

We have to make a society that works for the majority of people, not the extremely motivated ones."

But does migration lower wages?

"Study after study all come to the conclusion that the effect of migration on low skilled wages is zero. Even when you have big waves of migrants.

Neither when migrants were sent back home, nor when migrants arrived, did low-income wages change."

"Why? There are many reasons for that.

- When migrants come, they also consume, which creates new jobs.
- Migrants don't directly compete for jobs with natives, they usually get the jobs that nobody wants.
- When farm labor migrants got sent home, farmers mechanized instead."

"Economically, there's an argument for relaxing our immigration laws. It would not create an "invasion".

How do we know? E.g. because we were not flooded by Greeks. People prefer to stay home. Or in India: many stay in the country side, despite much higher earnings in the city."

On taxes:

"We have a lot of evidence that lowering taxes does not stimulate economic growth. People are not particularly sensitive to tax incentives. They don't stop working when taxes are higher and don't work more when taxes are lower."

"The issue of mobility is more delicate.

Within Europe, the problem of evasion and tax shopping is one that anybody who wants to increase taxes has to recon with. There's no coordination of tax policies among European countries.

People will evade. But they won't stop working."

"There was an interesting episode in Switzerland, where for technical reasons of a reform, there was a two year tax holiday. So people knew for that on income for two years they would pay zero taxes. Researchers found zero shifting of work/income over time to the no tax period."

Note: the paper is "Intertemporal Labor Supply Substitution? Evidence from the Swiss Tax Holidays" by @IZMartinez86, Saez and Siegenthaler.

Ungated version here: google.com/url?sa=t&rct=j…

@IZMartinez86 "The idea that if we raised taxes we would end up stifling growth to the point that tax revenues would actually fall is 'Voodoo economics'. That's so solidly debunked that it's not even funny."

So why is this such a dominant idea?

"I think there are two reasons for that and for why politicians such as Trump and now the UK conservatives still get away with making such claims:"

"Main reason: economists have repeated this for so long, since Friedman, Thatcher, Reagan, that it now has a little bit the tone of a lullaby or a mantra.

Second reason: it again goes with the view that other people are very sensitive to financial incentives."

"We interviewed 10'000 people online, who are more or less representative of the US public.

Half of them we asked questions about themselves: 'Suppose taxes increased, would you stop working, work less?' etc.

The other half, we asked 'Would other people do these things?' "

"People responded that they would not respond in this way to a tax increase. But they believed that other people would.

So it seems we think that *other people* are sensitive to this tax incentives. That makes people very reluctant to support tax increases."

So there is such a thing as economic consensus, like scientific consensus around climate change?

"I depends on the issue. The regular poll of leading economists [which you can find here: igmchicago.org/igm-economic-e…] is useful to see where academic econs stand at any point in time."

"On some issues there is a lot of consensus.

E.g. there was universal agreement that Trump's tariffs would not increase the welfare of the American people.

On other issues there is no consensus. Often on issues where the facts are not very well established. E.g. on automation."

On her personal background:

"Growing up it would have never occurred to be to be come an economist. From the age of 8 I thought I would be a historian and I studied history at college. But also from about that age I was an activist in my own ways."

"I was very keen that I should do something about poverty. I had a lot of exposure to it because my mom and my uncles were active in NGOs that help with kids victim of wars. So they were traveling to these countries and coming back and talking to us about it."

"I always had this questions of 'What's my responsibility?' 'How come I was born in a middle class family in France and some kids have to walk 5 kilometers to get water? That doesn't seem right.'"

"I had a bit of a crisis on what to do with my life. So I decided to take a year off & go to Russia for one year, 1993-94. It was a very difficult period for Russia. I got the opportunity to work for economists & I saw that their day job was potentially about changing the world."

"I saw economist being very much in the conversation. I didn't necessarily agree with what they had to say, but I could see that 'wow, this is like an amazing job!'.

At the same time, I met @PikettyLeMonde, who at that time was an assistant prof at MIT."

@PikettyLeMonde "@PikettyLeMonde said 'Oh, you're interested in practical things, you think econ is too abstract that's why you haven't liked it so far. But if you come to MIT, you'll see they will teach you how to look at data in a very good way, so you should do that."

[Note: mentors matter!]

@PikettyLeMonde "So it was the combination of finding out how economics could be pragmatic and seeing economists in action.

That's why I decided that this was what I should do. I could carry out my passion - improving the lot of the poorest in the world - as part of my day job."

@PikettyLeMonde What does the Nobel prize change?

"We don't know yet. We are still finding out. This prize is special because it is so public and gives such a huge spotlight. With Michael Kremer and Abhijit Banerjee we want to use it to further the movement."

@PikettyLeMonde "We keep saying the prize isn't for us. It's really for the movement. Of thinking about development issues methodically, little problem by little problem, as scientifically as possible, with experimental methods. This isn't something we did. It's something that maybe we nurtured"

@PikettyLeMonde About women and minorities in economics:

"The under-representation is a real problem because economics as a social science really benefits from diversity of viewpoints. Different people are interested in different questions, and they also see the questions differently".

@PikettyLeMonde "Until recently, the profession has not been very aware of it being a problem. But I think this has changed. There is an effort of thinking about what in our culture needs to change."

@PikettyLeMonde "Another reasons is that many people have the perception that economics is about growth rates, interest rates, finance, etc.

Take me: I had no interest in economics, even though I wanted to work on poverty. I never put two & two together until I saw the real work of economists."

@PikettyLeMonde "So the fact that the Nobel prize was given to development economics might help showing to young people:

'Look, econ is about those issues as well. So if you're worried about climate change, poverty, inequality, integration, minorities: economists study that.' "

@PikettyLeMonde Final question: How would you change the world if you could just do that?

"For people to start listening to each other and looking at the facts as facts, without too much preconception. If we could do that, we could collectively solve pretty much all the problems in the world."