The Royal Swedish Academy of Sciences will award the 2019 Nobel Prize in Economic Sciences to Abhijit Banerjee and Esther Duflo of the Massachusetts Institute of Technology and Michael Kremer of Harvard “for their experimental approach to alleviating global poverty.” The award reveals a deepening fault line among economists about how best to fight poverty.
What’s striking about the award is that the Nobel committee gave it to the three economists specifically for addressing “smaller, more manageable questions”—such as how to improve educational outcomes and child health in poor countries—rather than for big ideas. Mr. Banerjee and Ms. Duflo (a married couple) explicitly reject thinking about big questions in their 2011 book, “Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty.”
To be sure, breaking down big issues into smaller questions can sometimes allow quicker and more-direct solutions to unwieldy problems. Yet in the case of global poverty, economists actually do have pretty good ideas about how to fight the problem on a macro scale. Namely, immigration and economic growth, which are by far the most reliable ways to improve the quality of life among the world’s poor.
These are the opening 3 paragraphs of my article, “Nobel Laureates Aim Too Low on Global Poverty,” Wall Street Journal, October 15, 2019 (print edition.) Under my agreement with the Journal, I can run the whole piece 30 days from now and I will do so.
It’s not an ideal title. My point in the article is that the Nobel committee aimed too low, although I didn’t use that exact wording. If the Prize were awarded simply for good technical economics work, it would be well deserved. The problem is that the Nobel committee oversold the work, writing as if it’s small ideas that make the big difference in global poverty. It’s not.
If you want to see someone who’s even tougher than me on the importance of this line of work, see Lant Pritchett’s piece written in June, “Randomizing Development: Method or Madness.” I read his piece after writing my first draft but it affirmed my strategy.
READER COMMENTS
John Alcorn
Oct 15 2019 at 11:59am
Thanks for calling the attention of WSJ readers to the first decimal, while the Nobel Committee focusses on the second decimal.
David Henderson
Oct 15 2019 at 6:04pm
You’re welcome, John, and well put.
Gene Laber
Oct 15 2019 at 12:45pm
David,
Very good review in the WSJ. I especially enjoyed your drawing attention to the example of clinics in India increasing immunization rates by offering incentives of lentils and dining plates. I think one might have predicted that outcome based on a good Econ 101 course, long before the work of these Nobel Laureates.
Alan Goldhammer
Oct 15 2019 at 1:35pm
I don’t get the WSJ and will have to wait for David to post the full article. However, David writes in the excerpted part:
Of course this may be out of context from the article, but please explain how immigration improves the quality of life of the 99% of those in impoverished countries who are not able to immigrate. To the second point, from my reading of the Nobel award material, these economists did have solid ideas about economic growth in such countries. Over on Marginal Revolution both Professors Cowen and Tabarrok commented on the latter point.
One point of accuracy that has perhaps lapsed into obscurity these days; the formal name for the prize is ‘The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel’ as funds for the prize do not come from the Nobel estate.
John Alcorn
Oct 15 2019 at 2:06pm
Re: “please explain how immigration improves the quality of life of the 99% of those in impoverished countries who are not able to immigrate.”
Michael Clemens writes:
Dylan
Oct 15 2019 at 2:08pm
Alan, regarding your question on how immigration helps those left behind, I believe the answer is remittances that are sent back to family members in the home country. That can help bring more capital into a country and end up lifting standards of living for even those that do not have family abroad. I know I’ve read some research on this that attempts to estimate the magnitude, but I’ll have to spend some time to see if I can find it again.
David Henderson
Oct 15 2019 at 6:13pm
Thanks, Dylan, for answering Alan’s question.
Yes, Alan, remittances are a big part of the story. I wrote about them here and blogged about them here.
Let’s do a little numerate analysis. Let’s say that families in the immigrant’s country of origin get $5,000 a year from the immigrant who moves to a rich country. According to Robert Guest, in his excellent book Borderless Economics, that’s not a bad estimate. $5,000 a year on top of what people have in those poor countries is typically enough to move them out of poverty.
That means that $150 billion a year will get 30 million families out of poverty. If each family has 4 members, that means 120 million people are lifted out of poverty.
Let’s take your 1% number for the number who move. Assume that it’s 1% of the roughly 4 billion people in poor countries. That’s 40 million. So the remittances plus the movement of immigrants cause 200 million people to get out of poverty, which is 5% of the number of people in poor countries. That’s a much bigger effect than what Duflo et al are talking about.
Alan Goldhammer
Oct 16 2019 at 7:51am
David – thanks for the comments. I doubt that there are 40 million people who have left poor countries for richer ones. I understand how sending money back ‘home’ can help lift families up out of poverty but that does not substitute for industrialization. Take the example of Mexico, for a number of years money was sent back home from those working in the US but NAFTA changed things more dramatically, leading to many more economic opportunities in that country. Of course the same cannot be said of the Central American countries whose residents are trying to come to the US.
I also wonder if this income transfer effect is adjusted for population. A small number of Bangladeshis who have moved abroad won’t move the needle nearly as much as those moving from a much smaller Central American country such as Guatemala.
Jon Murphy
Oct 16 2019 at 9:40am
According to the UN, in 2017 (the latest available data I could find), the number of international migrants was 258 million in 2017 alone. Approximately 50 million resided in the US, followed by Russia, Germany, and Saudi Arabia (each around 12 million) and the UK (approx 9 million).
David Henderson
Oct 16 2019 at 12:27pm
Alan,
You’re the one who gave me the 1% and I was just going with that. You can retract it if you want, but be clear that that’s what you’re doing.
Jon Murphy
Oct 15 2019 at 5:34pm
As a point of fact, this is a distinction without a difference. The Swedes call it the Nobel Prize in Economics. The Nobel Museum in Stockholm has the econ winners and refers to it as the Nobel Prize in Economics. The King of Sweden refers to it as the Nobel Prize. The Committee refers to it as the Nobel Prize. Whether or not the funds come from the Nobel estate is wholly irrelevant.
David Henderson
Oct 15 2019 at 6:14pm
I agreed with you up to the end, Jon.
It matters a lot to me that the Nobel Foundation exists on voluntary funds whereas Sweden’s central bank gets its money through coercion.
Jon Murphy
Oct 15 2019 at 7:10pm
I just meant that it’s irrelevant toward the name. It’s a Nobel.
I agree it’s be best if the funds were voluntary
Dylan
Oct 15 2019 at 2:20pm
Like Alan, I don’t get the WSJ so I can’t comment on David’s full article, but I did take a look at the Pritchett piece. From reading that, it seems to be making a bit of a strawman argument. The construction of the paper is set up as if it is an either/or to research National Development, or to put money into smaller scale RCTs, when it seems the real state of the world is that we continue to do both just fine.
National development is obviously the first best solution to problems of global poverty, but as Mr. Pritchett himself admits, politicians aren’t always willing to listen, and sometimes they listen and take the wrong advice from economists. While we should of course continue to both do research, and pressure politicians to adopt policies that are more conducive to growth, that both takes a long time, and there are plenty of regions where it doesn’t seem like we can have much success.
Where RCTs come into play, seems to be much more along the lines of where can the individual, with a small donation, make the biggest impact? Even in those places where politicians are unlikely to go along with first best policies for economic growth. I would have thought that a libertarian would have been more positive to research that helps make individual philanthropic efforts more effective?
David Henderson
Oct 15 2019 at 6:16pm
Dylan,
You wrote:
Good point, and I am positive about that. I’m just not as positive as I am about letting them in.
Dylan
Oct 15 2019 at 7:14pm
I’m in absolute agreement with that. I’m about as big of a fan of open borders as Bryan, and I think it would be great if economists continually raised this issue and made as big of a deal out of it as they did of free trade over the last few decades. However, I think we should be realistic about the ability to move sentiment in our direction that strongly on this issue, at least in the near term. If we judge by the comments on this site, it seems hard enough to convince fellow libertarians.
V L Elliott
Oct 15 2019 at 7:07pm
“…politicians aren’t always willing to listen, and sometimes they listen and take the wrong advice from economists.”
To some extent the problem is not so much what politicians do with regard to economists and economic advice but whether or not they listen to the people they are supposedly serving. A major source of poverty and, indeed, misery, is organized, sustained collective violence and its destruction of people, property and institutions. Too often this is the result of politicians’ failure to even listen much less address legitimate problems. Restating for emphasis: Politicians’ failure to listen to those they are supposed to serve can and sometimes does contribute to the mobilization of groups that resort to violence, often for economic reasons (e.g., no taxation without representation, land to the tiller).
But economists contribute to the problem as well if for no other reason than byfailing to consider that rational individuals can and do resort to the use of violence when their options are too few and the costs of inaction exceed the benefits. Jack Hirshleifer observed that all human exchange takes place along a continuum from the purely peaceful to the entirely violent, all in the shadow conflict. The issue is not the conflict but the means of its resolution: exchange in the market place, adjudication in a body for resolution, small-scale/criminal violence or organized, sustained violence (the latter encompassing both intr aand inter-national violent conflict). Yet how many times do we see in the stated assumptions underlying theories and models a statement to the effect that violent conflict exists or that it is assumed or not assumed to be an option?
Even when a current violent conflict is resolved the issues of the nature of the peace settlement and post-conflict governance remain and are of great relevance and imporatnce. While he was at the World Bank Paul Collier, et al, found that countries that have had internal wars and reach a settlement have a 1 in 3 chance of returning to internal war within 5 years (for Sub-Saharan African countries the odds were 1 in 2 or 50/50). The countries that escaped this conflict trap achieved and maintained a rate of GDP growth of at least 5%, a point consistent with Dylan’s. The implication is that countries with truly inadequate resources to begin with need not only more resources but to make extraordinarily efficient use of all resources to generate the needed growth to avoid the massive destruction of resources and humanity that comes with sustained, violent, collective conflict . Todd Sandler et al then found that the effect of an internal war spilled over not only across shared borders but out to approximately 900 km beyond the borders of the country in which the fighting occurred. Internal war is therefore at least a regionally significant international matter as is a hoped for peace. Even with the substantial expansion of research across the phenomena of war and peace that has taken place since about 2003 there are limited contributions to this line of inquiry. To reduce poverty — which is certainly due in part to allocational issues but most definitely is due in large part to insufficient resources in the first place — it seems both obvious and general that the necessary condition requires finding means of conflict resolution that stops short of violence. It seems to me to be equally general and obvious that economists incorporate the possibility of violence within our theories and reasoning. I suggest that the reasoning not only of the game theorists but of Gordon Tullock, James Buchanan, Jack Hirshleifer, Todd Sandler, Herschel Grossman, Jean-Paul Azam, their students and co-authors and, more recently, Charles Anderton and James Carter be consciously addressed. (My apologies to the many who have addressed and/or are addressing the phenomena. Even with their contributions I see too little of their questions being picked up or their findings brought into more traditional lines of economic inquiry.)
I offer my congratulations to the three recent Nobel Laureates in Economic Science for their recognition and their respective bodies of very fine technical economic work. Still, I raise the issue of the very large and disruptive “elephant in the room” that is of formidable importance to the problem of poverty: violent conflict — emphasizing that violent conflict can be rational even when it is a human, resource, wealth destroyer. It should receive greater awareness of and higher priority for study within the economics profession. If you are looking for a big problem to address, this is about as big as I can think of.
Nick
Oct 16 2019 at 3:53am
Yes!
I’ve admittedly not read their work except for a superficial level summaries but it seems a bit too much. Perhaps, as you say, their technical work was top notch and if that is what they were recognised for, sure, great.
The best way to blow a punch to poverty on this planet would be by trade and labor liberalization. It’s practically magic and I wonder why no one, short of econlog writers, seem to espouse this as a matter of fact.
Again, I mean absolutely no disrespect to Dr Banerjee and Dr Duflo, I’m sure their work has been groundbreaking and outstanding. But it takes no genius to figure out that living standards shoot right up through the roof if we had just for once let the excluded people experience the bliss of the western world. And that, I think, is _far_ more effective at achieveing the stated purpose of ensuring people’s welfare than conducting local government programs that distribute immunization tablets, which even developing countries have been doing for more than decades now.
Mark Brady
Oct 17 2019 at 1:36am
In Macroeconomics, N. Gregory Mankiw considers alternative perspectives on population growth and contrasts the Malthusian model with the Kremerian model. You’ll find it on pp. 231-32 of the 10th ed. (New York: Worth, 2019). Mankiw summarizes Michael Kremer’s argument as “a large population is a prerequisite for technological advance.” The primary citation is Michael Kremer, “Population Growth and Technological Change: One Billion B.C. to 1990,” Quarterly Journal of Economics 108 (August 1993): 681-716.
David Henderson
Oct 17 2019 at 9:48am
Thanks, Mark. Good piece.
Alexandre Padilla
Oct 18 2019 at 6:44pm
David,
Quick remark about the end of your WSJ piece. Even though I support Michael Clemens for his outstanding work on immigration, you have to credit where credit is due. It’s Hamilton and Whalley who in 1984 were the first to argue that open borders would raise global GDP by up to 147.3% of GDP or $11.52 trillion. Then other economists followed them. Michael Clemens 2011 piece was more or less a summary of that literature. He’s done a lot of work as well but the idea that lowering immigration restrictions would increase global GDP and lift millions of people out of Poverty comes from Hamilton and Whalley, who by the way teach or taught in Ontario, CA.
Bob Hamilton, John Whalley,
Efficiency and distributional implications of global restrictions on labour mobility: Calculations and policy implications,
Journal of Development Economics,
Volume 14, Issue 1,
1984,
Pages 61-75
David Henderson
Oct 18 2019 at 11:53pm
Good point. Thanks.
Mark Brady
Oct 19 2019 at 9:49pm
Tim Harford has written a generous appreciation of the work of this year’s Nobel laureates in today’s Financial Times. He discusses the work of Michael Kremer at some length, especially his O-ring theory of development. I recommend readers check it out. The article is gated, but if you type “Tim Harford + Michael Kremer + ft.com” you should be able to access it.
David Henderson
Oct 19 2019 at 10:34pm
Yes, Kremer’s work is quite good. It’s too bad that the Nobel Committee didn’t give him the prize for that work and didn’t even mention that work in its 40-page writeup.
By the way, Alex Tabarrok has a nice appreciation of Kremer’s work also.
Mark Brady
Oct 20 2019 at 2:38am
“It’s too bad that the Nobel Committee didn’t give him the prize for that work and didn’t even mention that work in its 40-page writeup.”
40-page writeup? I can find only one page.
https://www.nobelprize.org/uploads/2019/10/press-economicsciences2019-2.pdf
And, yes, Alex Tabarrok’s appreciation is worth reading too.
David Henderson
Oct 20 2019 at 10:53am
Mark,
Here’s the 41-pager: https://www.nobelprize.org/uploads/2019/10/advanced-economicsciencesprize2019.pdf
Mark Brady
Oct 20 2019 at 2:05pm
Thank you! I’m teaching Economic Development (again) next spring so I’m more than usually interested in the work that earned them the Nobel prize and in Kremer’s other work in economics.
Cyril Morong
Oct 19 2019 at 9:59pm
John Kenneth Galbraith wrote a book in 1979 called The Nature of Mass Poverty (not one of his better known works). He devoted the entire last chapter to migration. One passage reads: “Migration, we have seen, is the oldest action against poverty. It selects those who most want help. It is good for the country to which they go; it helps to break the equilibrium of poverty in the country from which they come. What is the perversity in the human soul that causes people so to resist so obvious a good?”
David Henderson
Oct 20 2019 at 10:56am
Wow, Cyril. Thanks. Ken Galbraith may have actually been better on this than Milton Friedman. I know Friedman’s work pretty well and I know that he celebrated late 19th century and early 20th century immigration, and said some good things about immigration during the Great Depression, but I can’t recall him discussing immigration other than the famous quote expressing his skepticism about immigration when you have a welfare state.
Cyril Morong
Oct 20 2019 at 4:54pm
You’re welcome. Glad you liked it. I remember reading it many years ago and thinking that Galbraith was basically advocating a free market policy
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