Good Economics for Hard Times

by Abhijit V. Banerjee

  56 See, for example, Enrico Moretti and Pat Kline, “People, Places and Public Policy: Some Simple Welfare Economics of Local Economic Development Programs,” Annual Review of Economics 6 (2014): 629–62.

  57 David Autor, David Dorn, and Gordon H. Hanson, “When Work Disappears: Manufacturing Decline and the Fall of Marriage Market Value of Young Men,” AER Insights, forthcoming 2019, available as NBER Working Paper 23173, 2018, DOI: 10.3386/w23173.

  58 Anne Case and Angus Deaton, “Rising Morbidity and Mortality in Midlife Among White Non-Hispanic Americans in the 21st Century,” PNAS 112, no. 49 (2015): 15078–83, https://doi.org/10.1073/pnas.1518393112.

  59 Arnaud Costinot and Andrés Rodríguez-Clare, “The US Gains from Trade: Valuation Using the Demand for Foreign Factor Services,” Journal of Economic Perspectives 32, no. 2 (Spring 2018): 3–24.

  60 Rodrigo Adao, Arnaud Costinot, and Dave Donaldson, “Nonparametric Counterfactual Predictions in Neoclassical Models of International Trade,” American Economic Review 107, no. 3 (2017): 633–89; Costinot and Rodríguez-Clare, “The US Gains from Trade.”

  61 “GDP Growth (annual %),” World Bank, accessed March 29, 2019, https://data.worldbank.org/indicator/ny.gdp.mktp.kd.zg.

  62 Costinot and Rodríguez-Clare, “The US Gains from Trade.”

  63 Sam Asher and Paul Novosad, “Rural Roads and Local Economic Development,” Policy Research Working Paper 8466 (Washington, DC: World Bank, 2018).

  64 Sandra Poncet, “The Fragmentation of the Chinese Domestic Market Peking Struggles to Put an End to Regional Protectionism,” China Perspectives, accessed April 21, 2019, https://journals.openedition.org/chinaperspectives/410.

  65 Small Is Beautiful was a book written by the German ecologist Schumacher in 1974 to defend the Gandhian idea of small farms in villages. E. F. Schumacher, Small Is Beautiful: A Study of Economics as If People Mattered (London: Blond & Briggs, 1973).

  66 Nirmala Banerjee, “Is Small Beautiful?,” in Change and Choice in Indian Industry, eds. Amiya Bagchi and Nirmala Banerjee (Calcutta: K. P. Bagchi & Company, 1981).

  67 Chang-Tai Hsieh and Benjamin A. Olken, “The Missing ‘Missing Middle,’” Journal of Economic Perspectives 28, no. 3 (2014): 89–108.

  68 Adam Smith, The Wealth of Nations (W. Strahan and T. Cadell, 1776).

  69 Dave Donaldson, “Railroads of the Raj: Estimating the Impact of Transportation Infrastructure,” American Economic Review 108, nos. 4–5 (2018): 899–934.

  70 Dave Donaldson and Richard Hornbeck, “Railroads and American Growth: A ‘Market Access’ Approach,” Quarterly Journal of Economics 131, no. 2 (2016): 799–858.

  71 Arnaud Costinot and Dave Donaldson, “Ricardo’s Theory of Comparative Advantage: Old Idea, New Evidence,” American Economic Review 102, no. 3 (2012): 453–58.

  72 Asher and Novosad, “Rural Roads and Local Economic Development.”

  73 David Atkin and Dave Donaldson, “Who’s Getting Globalized? The Size and Implications of Intra-National Trade Costs,” NBER Working Paper 21439, 2015.

  74 “U.S. Agriculture and Trade at a Glance,” US Department of Agriculture Economic Research Service, accessed June 8, 2019, https://www.ers.usda.gov/topics/international-markets-us-trade/us-agricultural-trade/us-agricultural-trade-at-a-glance/.

  75 Ibid.

  76 “Occupational Employment Statistics,” Bureau of Labor Statistics, accessed March 29, 2019, https://www.bls.gov/oes/2017/may/oes452099.htm.

  77 “Quick Facts: United States,” US Census Bureau, accessed March 29, 2019, https://www.census.gov/quickfacts/fact/map/US/INC910217.

  78 Benjamin Hyman, “Can Displaced Labor Be Retrained? Evidence from Quasi-Random Assignment to Trade Adjustment Assistance,” January 10, 2018, https://ssrn.com/abstract=3155386 or http://dx.doi.org/10.2139/ssrn.3155386.

  79 “Education and Training,” Veterans Administration, accessed June 21, 2019, https://benefits.va.gov/gibill/.

  80 Sewin Chan and Ann Huff Stevens, “Job Loss and Employment Patterns of Older Workers,” Journal of Labor Economics 19, no. 2 (2001): 484–521.

  81 Henry S. Farber, Chris M. Herbst, Dan Silverman, and Till von Wachter, “Whom Do Employers Want? The Role of Recent Employment and Unemployment Status and Age,” Journal of Labor Economics 37, no. 2 (April 2019): 323–49, https://doi.org/10.1086/700184.

  82 Benjamin Austin, Edward Glaesar, and Lawrence Summers, “Saving the Heartland: Place-Based policies in 21st Century America,” Brookings Papers on Economic Activity conference draft 2018, accessed June 19, 2019, https://www.brookings.edu/wp-content/uploads/2018/03/3_austinetal.pdf.

  CHAPTER 4. LIKES, WANTS, AND NEEDS

  1 John Sides, Michael Tesler, and Lynn Vavreck, Identity Crisis: The 2016 Presidential Campaign and the Battle for the Meaning of America (Princeton, NJ: Princeton University Press, 2018).

  2 George Stigler and Gary Becker, “De Gustibus Non Est Disputandum,” American Economic Review 67, no. 2 (1977): 76–90.

  3 Abhijit Banerjee and Esther Duflo, Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty (New York: PublicAffairs, 2011).

  4 Abhijit V. Banerjee, “Policies for a Better-Fed World,” Review of World Economics 152, no. 1 (2016): 3–17.

  5 Abhijit Banerjee, “A Simple Model of Herd Behavior,” Quarterly Journal of Economics 107, no. 3 (1992): 797–817.

  6 Lev Muchnik, Sinan Aral, and Sean J. Taylor, “Social Influence Bias: A Randomized Experiment,” Science 341, no. 6146 (2013): 647–51.

  7 Drew Fudenberg and Eric Maskin, “The Folk Theorem in Repeated Games with Discounting or with Incomplete Information,” Econometrica 54, no. 3 (1986): 533–54; Dilip Abreu, “On the Theory of Infinitely Repeated Games with Discounting,” Econometrica 56, no. 2 (1988): 383–96.

  8 Elinor Ostrom, Governing the Commons (Cambridge: Cambridge University Press, 1990).

  9 See, for example, E. R. Prabhakar Somanathan and Bhupendra Singh Mehta, “Decentralization for Cost-Effective Conservation,” Proceedings of the National Academy of Sciences 106, no. 11 (2009): 4143–47; J. M. Baland, P. Bardhan, S. Das, and D. Mookherjee, “Forests to the People: Decentralization and Forest Degradation in the Indian Himalayas,” World Development 38, no. 11 (2010): 1642–56. This does not mean community ownership always works. Indeed, even the theory makes it clear that it may not. Suppose for example, that you expect other people in the community will not always play by the rules. The temptation for you to cheat is then stronger, since with some other people overgrazing, the common pasture will not be that great; therefore, the threat of exclusion from it will be less daunting. In fact, the evidence on whether communally owned forest areas are less deforested is not overwhelming.

  10 Robert M. Townsend, “Risk and Insurance in Village India,” Econometrica 62, no. 3 (1994): 539–91; Christopher Udry, “Risk and Insurance in a Rural Credit Market: An Empirical Investigation in Northern Nigeria,” Review of Economic Studies 61, no. 3 (1994): 495–526.

  11 A recent very well-argued book that makes this case is Raghuram Rajan’s The Third Pillar. Raghuram Rajan, The Third Pillar: How Markets and the State Leave Community Behind (New York: HarperCollins, 2019).

  12 Harold L. Cole, George J. Mailath, and Andrew Postlewaite, “Social Norms, Savings Behavior, and Growth,” Journal of Political Economy 100, no. 6 (1992): 1092–1125.

  13 Constituent Assembly of India Debates (proceedings), vol. 7, November 4, 1948, https://cadindia.clpr.org.in/constitution_assembly_debates/vol ume/7/1948-11-04. The relationship between the two men has been widely written about, notably by the novelist Arundhati Roy in her 2017 book, The Doctor and the Saint (which focuses more on Ambedkar) and Ramachandra Guha’s recent book Gandhi (told more from Gandhi’s side). The two men did not get along. Gandhi thought Ambedkar was a hothead; Ambedkar implied the old man was a bit of a fraud. Despite their opposition, it is with Gandhi’s blessing that Ambedkar ended up drafting the constitution. Arundhati Roy, The Doctor and the Saint: Caste, War, and the Annihilation of Caste (Chicag
o: Haymarket Books, 2017); Ramachandra Guha, Gandhi: The Years That Changed the World, 1914–1948 (New York: Knopf, 2018).

  14 Viktoria Hnatkovska, Amartya Lahiri, and Sourabh Paul, “Castes and Labor Mobility,” American Economic Journal: Applied Economics 4, no. 2 (2012): 274–307.

  15 Karla Hoff, “Caste System,” World Bank Policy Research Working Paper 7929, 2016.

  16 Kanchan Chandra, Why Ethnic Parties Succeed: Patronage and Ethnic Headcounts in India (Cambridge: Cambridge University Press, 2004); Christophe Jaffrelot, India’s Silent Revolution: The Rise of the Lower Castes in North India (London: Hurst and Company, 2003); Yogendra Yadav, Understanding the Second Democratic Upsurge: Trends of Bahujan Participation in Electoral Politics in the 1990s (Delhi: Oxford University Press, 2000).

  17 Abhijit Banerjee, Amory Gethin, and Thomas Piketty, “Growing Cleavages in India? Evidence from the Changing Structure of Electorates, 1962–2014,” Economic & Political Weekly 54, no. 11 (2019): 33–44.

  18 Abhijit Banerjee and Rohini Pande, “Parochial Politics: Ethnic Preferences and Politician Corruption,” CEPR Discussion Paper DP6381, 2007.

  19 “Black Guy Asks Nation for Change,” Onion, March 19, 2008, accessed June 19, 2019, https://politics.theonion.com/black-guy-asks-nation-for-change-1819569703.

  20 Eileen Patten, “Racial, Gender Wage Gaps Persist in U.S. Despite Some Progress,” Pew Research Center, July 1, 2016.

  21 Raj Chetty, Nathaniel Hendren, Maggie R. Jones, and Sonya R. Porter, “Race and Economic Opportunity in the United States: An Intergenerational Perspective,” NBER Working Paper 24441, 2018.

  22 According to a study by the Stanford Center on Poverty and Inequality: “At the end of 2015, a full 9.1 percent of young black men (ages 20–34) were incarcerated, a rate that is 5.7 times that of young white men (1.6%). Fully 10 percent of black children had an incarcerated parent in 2015, compared with 3.6 percent of Hispanic children and 1.7 percent of white children.” Becky Pettit and Bryan Sykes, “State of the Union 2017: Incarceration,” Stanford Center on Poverty and Inequality.

  23 In this sense, African Americans are more like Muslims in India than the scheduled castes. Muslims are simultaneously falling behind the Hindu population in economic terms and are the target of rising levels of violence from the majority Hindu population.

  24 Jane Coaston, “How White Supremacist Candidates Fared in 2018,” Vox, November 7, 2018, accessed April 22, 2019, https://www.vox.com/policy-and-politics/2018/11/7/18064670/white-supremacist-candidates-2018-midterm-elections.

  25 Robert P. Jones, Daniel Cox, Betsy Cooper, and Rachel Lienesch, “How Americans View Immigrants and What They Want from Immigration Reform: Findings from the 2015 American Values Atlas,” Public Religion Research Institute, March 29, 2016.

  26 Leonardo Bursztyn, Georgy Egorov, and Stefano Fiorin, “From Extreme to Mainstream: How Social Norms Unravel,” NBER Working Paper 23415, 2017.

  27 Cited in Chris Haynes, Jennifer L. Merolla, and S. Karthik Ramakrishnan, Framing Immigrants: News Coverage, Public Opinion, and Policy (New York: Russell Sage Foundation, 2016).

  28 Ibid.

  29 Anirban Mitra and Debraj Ray, “Implications of an Economic Theory of Conflict: Hindu-Muslim Violence in India,” Journal of Political Economy 122, no. 4 (2014): 719–65.

  30 Daniel L. Chen, “Club Goods and Group Identity: Evidence from Islamic Resurgence During the Indonesian Financial Crisis,” Journal of Political Economy 118, no. 2 (2010): 300–54.

  31 Amanda Agan and Sonja Starr, “Ban the Box, Criminal Records, and Statistical Discrimination: A Field Experiment,” Quarterly Journal of Economics 133, no. 1 (2017): 191–235.

  32 Ibid.

  33 Claude M. Steele and Joshua Aronson, “Stereotype Threat and the Intellectual Test Performance of African Americans,” Journal of Personality and Social Psychology 69, no. 5 (1995): 797–811.

  34 Steven J. Spencer, Claude M. Steele, and Diane M. Quinn, “Stereotype Threat and Women’s Math Performance,” Journal of Experimental Social Psychology 35, no. 1 (1999): 4–28.

  35 Joshua Aronson, Michael J. Lustina, Catherine Good, Kelli Keough, Claude M. Steele, and Joseph Brown, “When White Men Can’t Do Math: Necessary and Sufficient Factors in Stereotype Threat,” Journal of Experimental Social Psychology 35, no. 1 (1999): 29–46.

  36 Robert Rosenthal and Lenore Jacobson, “Pygmalion in the Classroom,” Urban Review 3, no. 1 (1968): 16–20.

  37 Dylan Glover, Amanda Pallais, and William Pariente, “Discrimination as a Self-Fulfilling Prophecy: Evidence from French Grocery Stores,” Quarterly Journal of Economics 132, no. 3 (2017): 1219–60.

  38 Ariel Ben Yishay, Maria Jones, Florence Kondylis, and Ahmed Mushfiq Mobarak, “Are Gender Differences in Performance Innate or Socially Mediated?,” World Bank Policy Research Working Paper 7689, 2016.

  39 Rocco Macchiavello, Andreas Menzel, Antonu Rabbani, and Christopher Woodruff, “Challenges of Change: An Experiment Training Women to Manage in the Bangladeshi Garment Sector,” University of Warwick Working Paper Series No. 256, 2015.

  40 Jeff Stone, Christian I. Lynch, Mike Sjomeling, and John M. Darley, “Stereotype Threat Effects on Black and White Athletic Performance,” Journal of Personality and Social Psychology 77, no. 6 (1999): 1213–27.

  41 Ibid.

  42 Marco Tabellini, “Racial Heterogeneity and Local Government Finances: Evidence from the Great Migration,” Harvard Business School BGIE Unit Working Paper 19-006, 2018, https://ssrn.com/abstract=3220439 or http://dx.doi.org/10.2139/ssrn.3220439; Conrad Miller, “When Work Moves: Job Suburbanization and Black Employment,” NBER Working Paper No. 24728, June 2018, DOI: 10.3386/w24728.

  43 Ellora Derenoncourt, “Can You Move to Opportunity? Evidence from the Great Migration,” working paper, accessed April 22, 2019, https://scholar.harvard.edu/files/elloraderenoncourt/files/derenoncourt_jmp_2018.pdf.

  44 Leonardo Bursztyn and Robert Jensen, “How Does Peer Pressure Affect Educational Investments?,” Quarterly Journal of Economics 130, no. 3 (2015): 1329–67.

  45 Ernst Fehr, “Degustibus Est Disputandum,” Emerging Science of Preference Formation, inaugural talk, Universitat Pompeu Fabra, Barcelona, Spain, October 7, 2015.

  46 Alain Cohn, Ernst Fehr, and Michel Andre Marechal, “Business Culture and Dishonesty in the Banking Industry,” Nature 516 (2014): 86–89.

  47 For an overview of their work, see Roland Bénabou and Jean Tirole, “Mindful Economics: The Production, Consumption, and Value of Beliefs,” Journal of Economic Perspectives 30, no. 3 (2016): 141–64.

  48 William Julius Wilson, When Work Disappears: The World of the New Urban Poor (New York: Knopf Doubleday, 1997).

  49 J. D. Vance, Hillbilly Elegy: A Memoir of a Family and Culture in Crisis (New York: Harper, 2016).

  50 Dan Ariely, George Loewenstein, and Drazen Prelec, “’Coherent Arbitrariness’: Stable Demand Curves without Stable Preferences,”Quarterly Journal of Economics 118, no. 1 (2003): 73–106.

  51 Daniel Kahneman, Jack L. Knetsch, and Richard H. Thaler, “Experimental Tests of the Endowment Effect and the Coase Theorem,” Journal of Political Economy 98, no. 6 (1990): 1325–48.

  52 Dan Ariely, George Loewenstein, and Drazen Prelec, “’Coherent Arbitrariness’: Stable Demand Curves without Stable Preferences,” Quarterly Journal of Economics 118, no. 1 (2003): 73–106.

  53 Muzafer Sherif, The Robber’s Cave Experiment: Intergroup Conflict and Cooperation, (Middletown, CT: Wesleyan University Press, 1998).

  54 Gerard Prunier, The Rwanda Crisis: History of a Genocide (New York: Columbia University Press, 1997).

  55 Paul Lazarsfeld and Robert Merton, “Friendship as a Social Process: A Substantive and Methodological Analysis,” in Freedom and Control in Modern Society, eds. Morroe Berger, Theodore Abel, and Charles H. Page (New York: Van Nostrand, 1954).

  56 Matthew Jackson, “An Overview of Social Networks and Economic Applications,” Handbook of Social Economics, 2010, accessed January 5, 2019, https://web.stanfor
d.edu/~jacksonm/socialnetecon-chapter.pdf.

  57 Kristen Bialik, “Key Facts about Race and Marriage, 50 Years after Loving v. Virginia,” Pew Research Center, 2017, http://www.pewresearch.org/fact-tank/2017/06/12/key-facts-about-race-and-marriage-50-years-after-loving-v-virginia/.

  58 Abhijit Banerjee, Esther Duflo, Maitreesh Ghatak, and Jeanne Lafortune, “Marry for What? Caste and Mate Selection in Modern India,” American Economic Journal: Microeconomics 5, no. 2 (2013), https://doi.org/10.1257/mic.5.2.33.

  59 Cass R. Sunstein, Republic.com. (Princeton, NJ: Princeton University Press, 2001); Cass R. Sunstein, #Republic: Divided Democracy in the Age of Social Media (Princeton, NJ: Princeton University Press, 2017).

  60 “Little Consensus on Global Warming: Partisanship Drives Opinion,” Pew Research Center, 2006, http://www.people-press.org/2006/07/12/little-consensus-on-global-warming/.

  61 R. Cass Sunstein, “On Mandatory Labeling, with Special Reference to Genetically Modified Foods,” University of Pennsylvania Law Review 165, no. 5 (2017): 1043–95.

  62 Matthew Gentzkow, Jesse M. Shapiro, and Matt Taddy, “Measuring Polarization in High-Dimensional Data: Method and Application to Congressional Speech,” working paper, 2016.

  63 Yuriy Gorodnickenko, Tho Pham, and Oleksandr Talavera, “Social Media, Sentiment and Public Opinions: Evidence from #Brexit and #US Election,” National Bureau of Economics Research Working Paper 24631, 2018.

  64 Shanto Iyengar, Gaurav Sood, and Yphtach Lelkes, “Affect, Not Ideology: A Social Identity Perspective on Polarization,” Public Opinion Quarterly, 2012, http://doi.org/10.1093/poq/nfs038.

  65 “Most Popular Social Networks Worldwide as of January 2019, Ranked by Number of Active Users (in millions),” Statista.com, 2019, accessed April 21, 2019, https://www.statista.com/statistics/272014/global-social-networks-ranked-by-number-of-users/.

  66 Maeve Duggan, Nicole B. Ellison, Cliff Lampe, Amanda Lenhart, and Mary Madden,“Social Media Update 2014,” Pew Research Center, 2015, http://www.pewinternet.org/2015/01/09/social-media-update-2014/.