Hope & Despair: An Economic Perspective

By Shlomo Maital  

Abhuit Banerjee & Esther Duflo

    Years ago, I lost hope for my profession, Economics.  For more than a century, from 1870 to 1979, Economics was a branch of applied math.  Virtuosity in math was essential for success.  My wife, a psychologist, and I began trying to research people rather than Greek letters, early on, in 1972/3 and wrote and published papers and two books.  But nobody was listening. 

     And then along came two Israelis,  Kahneman and Tversky, and their 1979 Econometrica paper, which persuaded economists of the importance of studying actual behavior (psychologists, not economists; Kahneman is still active and a Nobel laureate, Tversky died of cancer in 1995).  They did so, by shaping a mathematical behavioral model of behavior toward risk – speaking the language of economists, but preaching behavior!  Their model was tested empirically and showed major deviations from purely rational behavior.

      Today, behavioral economics dominates.   I was born too soon.

       Enter Esther Duflo and Abhuit Banerjee.   Banerjee shared the 2019 Nobel Memorial Prize in Economic Sciences with Esther Duflo and Michael Kremer “for their experimental approach to alleviating global poverty”. He and Esther Duflo, who are married, are the sixth married couple to jointly win a Nobel Prize.

     Esther Duflo is the Abdul Latif Jameel Professor of Poverty Alleviation and Development Economics in the Department of Economics at MIT. They met when Banerjee was her PhD supervisor at MIT in 1999, married in 2015, and have two children together.

    Their breakthrough?  Study policy alternatives by small-scale experiments, in the field, rather than by proving mathematical theorems.  A powerful idea.  See how policy drives behavior, in the real world, and test it.  A revolution.

     The couple has written a lovely New York Times Op-Ed, “Hope and despair in turbulent times”.  Few or no economists of my generation would or could write such a piece.   Here is their opening paragraph:

    “History offers many lessons, but the big picture is always a tangled skein of multicolored wool.  Where it leads says a lot about the particular strand that we choose to follow – the optimist always finds a threat that the pessimist will carefully avoid.”

     Find the strand of hope, they counsel.  There always is at least one.

     Israel’s 37th government was sworn in on Thursday, Dec. 29.  It is far right, homophobic, fanatically ultra-Orthodox, and largely incompetent, with leading ministers having served jail terms or convictions.  But as Duflo and Banerjee counsel, there is hope.  We are a country with incredibly creative young people who continue to launch amazing startups that change the world.  That force is inexorable. Like Niagara Falls, it cannot be shut off.

     Special thanks to Duflo and Banerjee. 

     Economics is back.