Good Economics for Hard Times

by Abhijit V. Banerjee

  25 David Atkin, “The Caloric Costs of Culture: Evidence from Indian Migrants,” American Economic Review 106, no. 4 (2016): 1144–81.

  26 In Bangladesh, a study found that providing incentives to wash your hands for before meals for a few weeks increases handwashing even after the incentives are removed. Furthermore, people warned that they would get incentives in the future started washing their hands in anticipation of the program, to prepare themselves. Hussam, Reshmaan, Atonu Rabbani, Giovanni Regianni, and Natalia Rigol, “Habit Formation and Rational Addiction: A Field Experiment in Handwashing,” Harvard Business School BGIE Unit Working Paper 18-030, 2017.

  27 Avraham Ebenstein, Maoyong Fan, Michael Greenstone, Guojun He, and Maigeng Zhou, “New Evidence on the Impact of Sustained Exposure to Air Pollution on Life Expectancy from China’s Huai River Policy,” PNAS 114, no. 39 (2017): 10384–89.

  28 WHO Global Ambient Air Quality Database (update 2018), https://www.who.int/airpollution/data/cities/en/.

  29 Umair Irfan, “How Delhi Became the Most Polluted City on Earth,” Vox, November 25, 2017.

  30 “The Lancet Commission on Pollution and Health,” Lancet 391 (2017): 462–512.

  31 “The Lancet: Pollution Linked to Nine Million Deaths Worldwide in 2015, Equivalent to One in Six Deaths,” Lancet, public release, 2018.

  32 Achyuta Adhvaryu, Namrata Kala, and Anant Nyshadham, “Management and Shocks to Worker Productivity: Evidence from Air Pollution Exposure in an Indian Garment Factory,” IGC working paper, 2016, accessed June 16, 2019, https://www.theigc.org/wp-content/uploads/2017/01/Adhvaryu-et-al-2016-Working-paper.pdf.

  33 Tom Y. Chang, Joshua Graff Zivin, Tal Gross, and Matthew Neidell, “The Effect of Pollution on Worker Productivity: Evidence from Call Center Workers in China,” American Economic Journal: Applied Economics 11, no. 1 (2019): 151–72.

  34 A short-lived “odd-even” restriction, where cars with license plates ending in odd and even numbers were allowed out on alternate days led to a decline in particulate matter, but was brought down by a cabal of irate elites and environmental experts with “better” plans. Michael Greenstone, Santosh Harish, Rohini Pande, and Anant Sudarshan, “The Solvable Challenge of Air Pollution in India,” in India Policy Forum volume conference volume 2017 (New Delhi: Sage Publications, 2017).

  35 Kevin Mortimer et al., “A Cleaner-Burning Biomass-Fuelled Cookstove Intervention to Prevent Pneumonia in Children under 5 Years Old in Rural Malawi (the Cooking and Pneumonia Study): A Cluster Randomised Controlled Trial,” Lancet 389, no. 10065 (2016): 167–75.

  36 Theresa Beltramo, David L. Levine, and Garrick Blalock, “The Effect of Marketing Messages, Liquidity Constraints, and Household Bargaining on Willingness to Pay for a Nontraditional Cook-stove,” Center for Effective Global Action Working Paper Series No. 035, 2014; Theresa Beltramo, Garrick Blalock, David I. Levine, and Andres M. Simons, “Does Peer Use Influence Adoption of Efficient Cookstoves? Evidence from a Randomized Controlled Trial in Uganda,” Journal of Health Communication: International Perspectives 20 (2015): 55–66; David I. Levine, Theresa Beltramo, Garrick Blalock, and Carolyn Cotterman, “What Impedes Efficient Adoption of Products? Evidence from Randomized Variation of Sales Offers for Improved Cookstoves in Uganda,” Journal of the European Economic Association 16, no. 6 (2018): 1850–80; Ahmed Mushfiq Mobarak, Puneet Dwivedi, Robert Bailis, Lynn Hildemann, and Grant Miller, “Low Demand for Nontraditional Cookstove Technology,” Proceedings of the National Academy of Sciences 109, no. 27 (2012): 10815–20.

  37 Rema Hanna, Esther Duflo, and Michael Greenstone, “Up in Smoke: The Influence of Household Behavior on the Long-Run Impact of Improved Cooking Stoves,” American Economic Journal: Economic Policy 8, no. 1 (2016): 80–114.

  38 Abhijit V. Banerjee, Selvan Kumar, Rohini Pande, and Felix Su, “Do Voters Make Informed Choices? Experimental Evidence from Urban India,” working paper, 2010.

  CHAPTER 7. PLAYER PIANO

  1 Kurt Vonnegut, Player Piano (New York: Charles Scribner’s Sons, 1952).

  2 Kurt Vonnegut, God Bless You, Mr. Rosewater (New York: Holt, Rinehart and Winston, 1965).

  3 Erik Brynjolfsson and Andrew McAfee, The Second Machine Age (New York: W. W. Norton & Company, 2014).

  4 David H. Autor, “Why Are There Still So Many Jobs? The History and Future of Workplace Automation,” Journal of Economic Perspectives 29, no. 3 (2015): 3–30.

  5 Ellen Fort, “Robots Are Making $6 Burgers in San Francisco,” Eater San Francisco, June, 21, 2018.

  6 Michael Chui, James Manyika, and Mehdi Miremadi, “How Many of Your Daily Tasks Could Be Automated?,” Harvard Business Review, December 14, 2015 and “Four Fundamentals of Business Automation,” McKinsey Quarterly, November 2016, accessed June 19, 2019, https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/four-fundamentals-of-workplace-automation.

  7 “Automation, Skills Use and Training,” Organisation for Economic Co-operation and Development Library, accessed April 19, 2019, https://www.oecd-ilibrary.org/employment/automation-skills-use-and-training_2e2f 4eea-en.

  8 “Robots and Artificial Intelligence,” Chicago Booth: The Initiative on Global Markets, IGM Forum, June 30, 2017.

  9 Robert Gordon, The Rise and Fall of American Growth (Princeton, NJ: Princeton University Press, 2016).

  10 Databases, Tables, and Calculators by Subject, Series LNS14000000, Bureau of Labor Statistics, accessed April 11, 2019, https://data.bls.gov/timeseries/lns14000000.

  11 Robert Gordon, The Rise and Fall of American Growth (Princeton, NJ: Princeton University Press, 2016); “Labor Force Participation Rate, Total (% total population ages 15+) (national estimate),” World Bank Open Data, https://data.worldbank.org/indicator/SL.TLF.CACT.NE.ZS?locations =US.

  12 Daron Acemoglu and Pascual Restrepo, “Artificial Intelligence, Automation and Work,” NBER Working Paper 24196, 2018.

  13 N. F. R. Crafts and Terence C. Mills, “Trends in Real Wages in Britain 1750–1913,” Explorations in Economic History 31, no. 2 (1994): 176–94.

  14 Robert Fogel and Stanley Engerman, Time on the Cross (New York: W. W. Norton & Company, 1974).

  15 Daron Acemoglu and Pascual Restrepo, “Robots and Jobs: Evidence from United States Labor Markets,” NBER Working Paper 23285, 2017.

  16 Daron Acemoglu and Pascual Restrepo, “The Race Between Machine and Man: Implications of Technology for Growth, Factor Shares and Employment,” NBER Working Paper 22252, 2017.

  17 David Autor, “Work of the Past, Work of the Future,” Richard T. Ely Lecture, American Economic Association: Papers and Proceedings, 2019.

  18 Daron Acemoglu and Pascual Restrepo, “Artificial Intelligence, Automation and Work,” NBER Working Paper 24196, 2018.

  19 Ibid.

  20 Ibid.

  21 Aaron Smith and Monica Anderson, “Americans’ Attitudes towards a Future in Which Robots and Computers Can Do Many Human Jobs,” Pew Research Center, October 4, 2017, accessed April 3, 2019, http://www.pew internet.org/2017/10/04/americans-attitudes-toward-a-future-in-which-robots-and-computers-can-do-many-human-jobs/.

  22 Jean Tirole and Olivier Blanchard, for example, have argued that the uncertainty in the outcome of a firing could in fact exacerbate unemployment. (David Blanchard and Olivier Tirole, “The Optimal Design of Unemployment Insurance and Employment Protection. A First Pass,” NBER Working Paper 10443, 2004.) However, it does not appear that European countries that have loosened employment protection have lower unemployment. Overall, there seems to be no relationship. Giuseppe Bertola, “Labor Market Regulations: Motives, Measures, Effects,” International Labor Organization, Conditions of Work and Employment Series No. 21, 2009.

  23 Kevin J. Delaney, “The Robot That Takes Your Job Should Pay Taxes, Says Bill Gates,” Quartz, February 17, 2017, accessed April 13, 2019, https://qz.com/911968/bill-gates-the-robot-that-takes-your-job-should-pay-taxes/.

  24 “European Parliament Calls for Robot Law, Rejects Robot Tax,” Reuters, February 16, 2017, acc
essed April 12, 2019, https://www.reuters.com/article/us-europe-robots-lawmaking/european-parliament-calls-for-robot-law-rejects-robot-tax-idUSKBN15V2KM.

  25 Ryan Abbott and Bret Bogenschneider, “Should Robots Pay Taxes? Tax Policy in the Age of Automation,” Harvard Law & Policy Review 12 (2018).

  26 John DiNardo, Nicole M. Fortin, and Thomas Lemieux, “Labor Market Institutions and Distribution of Wages, 1973–1990: A Semiparametric Approach,” Econometrica 64, no. 5 (1996): 1001–44; David Card, “The Effect of Unions on the Structure of Wages: A Longitudinal Analysis,” Econometrica 64, no. 4 (1996): 957–79; Richard B. Freeman, “How Much Has Deunionization Contributed to the Rise of Male Earnings Inequality?,” in eds. Sheldon Danziger and Peter Gottschalk Uneven Tides: Rising Income Inequality in America (New York: Russell Sage Foundation, 1993), 133–63.

  27 See “UK Public Spending Since 1900,” https://www.ukpublicspend ing.co.uk/past_spending.

  28 John Kenneth Galbraith. “Recession Economics.” New York Review of Books, February 4, 1982.

  29 Facundo Alvaredo, Lucas Chancel, Thomas Piketty, Emmanuel Saez, and Gabriel Zucman, “World Inequality Report 2018: Executive Summary,” Wid.World, 2017, accessed April 13, 2019, from the World Inequality Lab website: https://wir2018.wid.world/files/download/wir2018-summary-english.pdf.

  30 “United Kingdom,” World Inequality Database, Wid.World, accessed April 13, 2019, https://wid.world/country/united-kingdom/.

  31 Thomas Piketty, Emmanuel Saez, and Stefanie Stantcheva, “Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities,” American Economic Journal: Economic Policy 6, no. 1 (2014): 230–71, DOI: 10.1257/pol.6.1.230.

  32 Facundo Alvaredo, Lucas Chancel, Thomas Piketty, Emmanuel Saez, and Gabriel Zucman, “World Inequality Report 2018,” Wid.World, retrieved from the World Inequality Lab website: https://wir2018.wid.world/files/download/wir2018-full-report-english.pdf.

  33 David Autor, “Work of the Past, Work of the Future,” Richard T. Ely Lecture, American Economic Review: Papers and Proceedings, 2019.

  34 David Autor, David Dorn, Lawrence F. Katz, Christina Patterson, and John Van Reenen, “The Fall of the Labor Share and the Rise of Superstar Firms,” NBER Working Paper 23396, issued in May 2017, DOI: 10.3386/w2339.

  35 Thomas Piketty, Capital in the Twenty-First Century, trans. Arthur Goldhammer (Cambridge, MA: Harvard University Press, 2014).

  36 World Bank Data, accessed April 19, 2019, https://data.worldbank.org/indicator/ne.trd.gnfs.zs.

  37 Claudia Goldin and Lawrence F. Katz, The Race between Education and Technology (Cambridge, MA: Harvard University Press, 2010).

  38 Thomas Piketty, Capital in the Twenty-First Century, trans. Arthur Goldhammer (Cambridge, MA: Harvard University Press, 2014).

  39 David Autor, David Dorn, Lawrence F. Katz, Christina Patterson, and John Van Reenen, “The Fall of the Labor Share and the Rise of Superstar Firms,” NBER Working Paper 23396 10.3386/w2339, 2017.

  40 Jason Furman and Peter Orszag, “Slower Productivity and Higher Inequality: Are They Related?,” Peterson Institute for International Economics Working Paper 18-4, 2018.

  41 Jae Song, David J Price, Fatih Guvenen, Nicholas Bloom, Till von Wachter, “Firming Up Inequality,” Quarterly Journal of Economics, Volume 134, no. 1 (2019): 1–50, https://doi.org/10.1093/qje/qjy025.

  42 Sherwin Rosen, “The Economics of Superstars,” American Economic Review 71, no. 5 (1981): 845–58.

  43 Xavier Gabaix and Augustin Landier, “Why Has CEO Pay Increased So Much?,” Quarterly Journal of Economics 123, no. 1 (2008): 49–100.

  44 Facundo Alvaredo, Lucas Chancel, Thomas Piketty, Emmanuel Saez, and Gabriel Zucman, “World Inequality Report 2018,” Wid.World, 2017, retrieved from the World Inequality Lab website: https://wir2018.wid.world/files/download/wir2018-full-report-english.pdf.

  45 World Inequality Database, Wid.World, https://www.wid.world.

  46 Robin Greenwood and David Scharfstein, “The Growth of Finance,” Journal of Economic Perspectives 27, no. 2 (2013): 3–28.

  47 Thomas Philippon and Ariell Reshef, “Wages and Human Capital in the U.S. Finance Industry: 1909–2006,” Quarterly Journal of Economics 127, no. 4 (2012): 1551–1609.

  48 Brian Bell and John Van Reenen, “Bankers’ Pay and Extreme Wage Inequality in the UK,” CEP Special Report, 2010.

  49 Jon Bakija, Adam Cole, and Bradley T. Heim, “Jobs and Income Growth of Top Earners and the Causes of Changing Income Inequality: Evidence from U.S. Tax Return Data,” working paper, Williams College, 2012, accessed June 19, 2019, https://web.williams.edu/Economics/wp/BakijaCole HeimJobsIncomeGrowthTopEarners.pdf.

  50 Bertrand Garbinti, Jonathan Goupille-Lebret, and Thomas Piketty, “Income Inequality in France, 1900–2014: Evidence from Distributional National Accounts (DINA),” WID.world Working Paper Series No. 2017/4, 2017.

  51 Olivier Godechot, “Is Finance Responsible for the Rise in Wage Inequality in France?,” Socio-Economic Review 10, no. 3 (2012): 447–70.

  52 Eugene F. Fama and Kenneth R. French, “Luck Versus Skill in the Cross-Section of Mutual-Fund Returns,” Journal of Finance 65, no. 5 (2010): 1915–47.

  53 Thomas Philippon and Ariell Reshef, “Wages and Human Capital in the U.S. Finance Industry: 1909–2006, Quarterly Journal of Economics 127, no. 4 (2012): 1551–1609.

  54 Robin Greenwood and David Scharfstein, “The Growth of Finance,” Journal of Economic Perspectives 27, no. 2 (2013): 3–28.

  55 Claudia Goldin and Lawrence F. Katz, “Transitions: Career and Family Life Cycles of the Educational Elite,” American Economic Review 98, no. 2 (2008): 363–69.

  56 Marianne Bertrand and Sendhil Mullainathan, “Are CEO’s Rewarded for Luck? The Ones Without Principals Are,” Quarterly Journal of Economics 116, no. 3 (2001): 901–32.

  57 Scharfstein and Greenwood showed that in most continental European countries the share of finance in the economy either did not grow much in the 1990s and 2000s, or it even declined. Robin Greenwood and David Scharfstein, “The Growth of Finance,” Journal of Economic Perspectives 27, no. 2 (2013): 3–28.

  58 Thomas Piketty, Capital in the Twenty-First Century, trans. Arthur Goldhammer (Cambridge, MA: Harvard University Press, 2014), 550–51, and Emmanuel Saez and Gabriel Zucman, “Alexandria Ocasio-Cortez’s Idea Is Not about Soaking the Rich,” accessed April 20, 2019, https://www.nytimes.com/2019/01/22/opinion/ocasio-cortez-taxes.html.

  59 Thomas Piketty, Emmanuel Saez, and Stefanie Stantcheva, “Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities,” American Economic Journal: Economic Policy 6, no. 1 (2014): 230–71.

  60 Maury Brown, “It’s Time to Blowup the Salary Cap Systems in the NFL, NBA, and NHL,” Forbes, March 10, 2015, accessed April 11, 2019, https://www.forbes.com/sites/maurybrown/2015/03/10/its-time-to-blowup-the-salary-cap-systems-in-the-nfl-nba-and-nhl/#1e35ced969b3.

  61 Our discussion in this section and the next draws heavily on the work of Thomas Piketty, Emmanuel Saez, and Gabriel Zucman. A reader who wants to go deeper is enjoined to read Thomas Piketty, Capital in the Twentieth Century, trans. Arthur Goldhammer (Cambridge, MA: Harvard University Press, 2014); Gabriel Zucman’s The Hidden Wealth of Nations (Chicago: University of Chicago Press, 2015); and Saez’s and Zucman’s forthcoming book, The Triumph of Injustice.

  62 Emmanuel Saez, Joel Slemrod, and Seth H. Giertz, “The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review,” Journal of Economic Literature 50, no. 1 (2012): 3–50.

  63 Pian Shu, “Career Choice and Skill Development of MIT Graduates: Are the ‘Best and Brightest’ Going into Finance?,” Harvard Business School Working Paper 16-067, 2017.

  64 David Autor, “Skills, Education, and the Rise of Earnings Inequality among the ‘Other 99 Percent,’” Science 344, no. 6168 (2014): 843–51.

  65 Henrik J. Kleven, Camille Landais, and Emmanuel Saez. 2013. “Taxation and International Migration of Superstars: Evidence from the European Football Market,” America
n Economic Review 103, no. 5: 1892–1924.

  66 Annette Alstadsæter, Niels Johannesen, and Gabriel Zucman, “Tax Evasion and Inequality,” NBER Working Paper 23772, 2018.

  67 Thomas Piketty, Capital in the Twenty-First Century, trans. Arthur Goldhammer (Cambridge, MA: Harvard University Press, 2014).

  68 Ibid.

  69 The other part is that investment income is taxed at a lower rate anyway. An alternative to a wealth tax would be to tax investment income even when it is not distributed, but it is technically very difficult to account for that income.

  70 Ben Casselman and Jim Tankersly, “Democrats Want to Tax the Wealthy. Many Voters Agree.” New York Times, February 19, 2019, https://www.nytimes.com/2019/02/19/business/economy/wealth-tax-elizabeth-warren.html.

  71 H. J. Kleven, Knudsen, M. B., Kreiner, C. T., Pedersen, S. and E. Saez, “Unwilling or Unable to Cheat? Evidence from a Tax Audit Experiment in Denmark,” Econometrica 79 (2011): 651–92, doi:10.3982/ECTA9113.

  72 Gabriel Zucman, “Sanctions for Offshore Tax Havens, Transparency at Home,” New York Times, April 7, 2016; Gabriel Zucman, “The Desperate Inequality behind Global Tax Dodging,” Guardian, November 8, 2017.

  73 Henrik Jacobsen Kleven, Camille Landais, Emmanuel Saez, and Esben Schultz, “Migration and Wage Effects of Taxing Top Earners: Evidence from the Foreigners’ Tax Scheme in Denmark,” Quarterly Journal of Economics 129, no. 1 (2013): 333–78.

  74 Ben Casselman and Jim Tankersly, “Democrats Want to Tax the Wealthy. Many Voters Agree,” New York Times, February 19, 2019, https://www.nytimes.com/2019/02/19/business/economy/wealth-tax-elizabeth-warren.html.

  75 Abhijit Banerjee, Esther Duflo, and Stefanie Stantcheva, “Me and Everyone Else: Do People Think Like Economists?,” MIMEO, Massachusetts Institute of Technology, 2019.

  76 Erzo F. P. Luttmer, “Neighbors as Negatives: Relative Earnings and Well-Being,” Quarterly Journal of Economics 120, no. 3 (2005): 963–1002.

  77 Ricardo Perez-Truglia, “The Effects of Income Transparency on Well-Being: Evidence from a Natural Experiment,” NBER Working Paper 25622, 2019.