Esther Duflo says economists have lost all credibility. So how do they get it back?

Posted on Monday, November 8, 2021

Esther Duflo

“People no longer trust economists,” said guest speaker Esther Duflo at the University of Ottawa’s Alex Trebek Forum for Dialogue in October. And no, the irony of a Nobel Prize-winning economist making such a statement was not lost on anyone.

Citing a 2017 UK survey of the varying levels of trust people place in experts in different fields, Duflo noted that economists came in at 25% — “half the trust that is given to meteorologists.”

In fact, research shows that over the past several years, the analyses conducted by expert economists have not swayed public opinion, particularly in Europe and North America. For example, in the US, people largely ignored economists when they said that an increase in steel and aluminium tariffs would not improve the well-being of Americans.

In France, the gilets jaunes rejected economists’ claims that a carbon tax on citizens was a better strategy to mitigate the effects of climate change than imposing restrictions on industry. According to the gilets jaunes, the carbon tax would inevitably fall on low-income communities, creating more disparities between socio-economic classes.

“People clearly don’t trust the reasoning of economists, probably because they just don’t start from the same premise,” said Duflo. “Economists start with the idea that it’s always possible to redistribute wealth, and that in a perfect world, it would be redistributed. But citizens don’t believe that. These two groups have different beliefs about how the world actually works.”

According to Duflo, the profession is seen as homogeneous, “made up of White men wearing ties who are unable to understand issues that are close to people.”

This perception was reinforced in the US during the rise of the Black Lives Matter movement. People pointed out how little research exists on racism and discrimination in academic papers authored by economists. It was also around this time that the Wall Street Journal published articles, largely founded on other articles written by prominent economists, arguing that systemic racism in police forces is a myth.

“Economists are either seen as proponents of the status quo or as meteorologists of the global economy who can’t even accurately predict the coming of a recession,” says Duflo. “It’s no wonder confidence in the profession is low. So now, where does that leave us?”
 

Good economics for hard times

In her 2019 book, Good Economics for Hard Times, Duflo presents five points that she believes economists and politicians must [re]consider if they want to regain the public’s trust.

1. The government: Should it stay or should it go?

Duflo often hears economists say that governments are so much less efficient than the private sector. “What we forget is that the government intervenes precisely when the market has reached its limits,” she says. “There’s an extreme lack of confidence in government, even when that government is trying to mandate something in the public’s own interest.”

We saw it in the US during debates on Obamacare, with opponents adopting the slogan “Keep government out of my Medicare,” which is ironic since, as Duflo points out, Medicare is itself a government program.

During the COVID-19 pandemic, the government mandated mask-wearing and safety measures. “We need governments to impose mandates on society that are for the public good but that may not be good for the individual.” We also need governments to borrow money to bail out our economies, she adds. And only government could have funded the research that brought us the ventilators and vaccines we currently use to combat COVID-19.

Duflo says we’re at a critical moment that could make or break us. Some people realize how crucial it is to have a functioning government in our lives in light of the mandates governments imposed to protect us during the pandemic, while others are convinced that governments have grossly overstepped their jurisdictions and should not have such power. “Now that we’ve got COVID-19 under control and the economy will stabilize on its own, it’s time to either re-establish the government’s credibility or tear it down completely.”

2. Does financial aid lead to laziness?

According to Duflo, many economists and politicians base their analyses on two false premises: one is that people of low-economic status only work because they have to, that they would stop working if salaries were no longer essential for survival, and two, that people of high-economic status would work less if their taxes were high, that they’re motivated to work only when taxes are low.

When the US, Canada, and Europe introduced generous financial relief programs to mitigate the effects of the pandemic on the economy, economists and politicians criticized the programs, saying that people would stop working because they were receiving higher compensation than if they had gone to work.

“But did it actually stop them from working? Not at all,” says Duflo. “Studies have consistently shown that access to social assistance does not make people any lazier or any less inclined to work. And these results are the same across all countries.”

Why do people keep working even though they’re getting financial aid? Duflo says it’s because “salary” is not the only reason people work — far from it. Surveys indicate that people work because it gives them a sense of dignity, purpose, and belonging in society.

There’s a lot of evidence out there to suggest that the economy wouldn’t collapse, and that people wouldn’t abandon the workforce, if society had more social programs in place to help them. “Unfortunately, some myths are hard to dispel,” says Duflo.

3. The economy is "stickier" than we think

Many economists and politicians believe that what sustains an economy, what allows it to absorb shocks, is that people relocate when a region is in economic decline or change sectors when an industry is in trouble, and that this relocation ends up balancing things out.

Duflo says that this premise, though once true, is now false. Studies show that between 1948 and 2015, the number of people relocating to new regions dropped by half. People are a lot less mobile than they used to be.

In fact, in the 1990s, during a Chinese market crash that affected several manufacturing sectors in the US, the number of Americans migrating from one state to another remained the same. Economists predicted that people from North Carolina would move to California, where jobs were being created, but in fact, people stayed where they were and took the hit.

In India, people did relocate after the economy collapsed in their regions due to pandemic lockdowns. But once they had moved, they stayed in place, given that there was no point in moving again when a second or third wave might be imminent.

4. “There’s no accounting for taste”

Chicago economists Dean Baker and George Stigler titled a newspaper article with this headline, meaning that it’s not an economist’s job to know why people have certain preferences and others don’t.

According to Duflo, many economists believe that personal preferences, i.e. what is happening in people’s lives and what topics matter to them, have no bearing on the economy and therefore, do not need to be taken into account in economists’ analyses.

But Duflo argues that this way of thinking is outdated. During the current pandemic, the death rate for Black individuals has been 3-to-4 times higher than for White people, and this issue is top of mind for many citizens. Duflo believes that it is becoming harder for economists not to engage with such issues and that doing so should be seen as a priority.

5. Our planet has a common destiny, and we should align our politics with this principle

Duflo argues that we need to prioritize human dignity in our social programs and our national strategies. “We did it for the most part during the COVID-19 pandemic because so many of us found ourselves in the same boat,” she says. “So can we not use this same model in our everyday economy to make sure that when people need help, they can access it without feeling inferior and losing their dignity?”

The pandemic showed us that if we don’t act fast, today, our future could be radically different, and the same goes for climate change, adds Duflo. With the spread of the virus, people saw a real-life example of rapid destruction, and so are more open to the idea that climate change is in fact something that needs our attention now.

The pandemic also showed us that there is only one world and one health, and that we are all affected by changes to it. “As long as 90% or more of the people in Africa remain unvaccinated, the possibility for a variant to develop remains high and the likelihood of conquering COVID in a stable manner is very low.”

Duflo maintains that the rich part of the world should consider vaccinating everyone, which ultimately costs them very little compared to the trillions they’ve already spent trying to mitigate the effects of the virus. Vaccinating the entire world would cost $50 billion. “It would be an opportunity to demonstrate our solidarity, and beyond that, to arm ourselves so we can fight together against the challenges before us.”

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