Good Economics for Hard Times, by the husband and wife Nobel Prize winning authors Abhijit Banerjee and Esther Duflo, based at MIT, is an extremely valuable, accessible and thought- provoking book for those of us who believe that economics education is much more than just getting students through examinations. If you believe in encouraging your students to think deeply about the subject, to develop critical awareness and want to explore current issues that they are likely to engage with, then this ground breaking book is definitely one for your bookshelf. Hopefully, it is also one that at least some of your students, particularly those with aspirations to study economics at university, will be interested in dipping into and enjoy reading for themselves.
The authors are ambitious in their central intent which is to restore faith in economists, who are ranked only marginally above politicians at the bottom of a table based on a
recent survey of who the public have greatest confidence in. They attempt to do this by being ‘hard headed about the facts, sceptical of slick answers and magic bullets, modest and honest about what we know and understand, and perhaps most importantly, willing to try ideas and solutions and be wrong, as long as it takes us toward the ultimate goal of building a more humane society.’ Their opening chapter is entitled ‘Make economics great again’ and starts with a joke about how boring economists can be! This sets the tone for the rest of the book, which aims to be accessible to a wide audience and avoids using technical jargon and complex theories and models. Students studying A level economics ought to be familiar with nearly all the key economic concepts they deploy in their analysis. However some material will be new to students (and perhaps for some of their teachers too!) where basic concepts are empirically tested, using a combination of the most recent research findings and drawing on factual evidence.
An early chapter, which considers immigration and its impact on employment and wages, illustrates the authors’ approach. They take as their starting point what they refer to as ‘napkin’ or ‘high school’ economics: immigration causes the supply curve for labour to shift to the right, resulting in a fall in the average wage rate for the native population. They then use evidence to show why this simple analysis is seductive but wrong. In fact, they argue, immigration has very little impact on wages or employment opportunities for the native population of a country. This is partly because the amount of immigration relative to the size of the native working population is mainly very small (for example, non-EU migration in any one year is typically less than a half of one percent and most of this is made up of legal immigrants who have job offers or who are joining their families). Locally, of course, migrants may represent a much larger proportion of the population but there is still little evidence that even in these areas they cause wage rates to fall or a decline in employment opportunities. This is because new migrants also cause the demand curve for labour to shift to the right, offsetting at least some of the impact of the rightwards shift in the labour supply curve. Immigrants spend money in shops, restaurants and other service providers, generating jobs, particularly for low skilled workers. The authors also engage in an interesting analysis of why there are so few economic migrants (why, for example, do most Greeks choose to remain in Greece, despite the dire state of the economy, when they could legally migrate to other parts of the EU where there are more employment opportunities and the possibility of earning higher wages?). There is plenty of interesting material here for the A level teacher to use to stimulate thinking. One approach might be to start with a question about why people migrate, then to elicit students’ views about the size of migration and explore why economic migration is relatively small. The lesson might then move on to considering the impact of migration using basic supply and demand analysis, followed by a discussion about how the evidence challenges the predictions of this simple model. Hopefully, this will both deepen students’ understanding of the labour market and help to expose some of the myths that emanate from ‘napkin’ economic theory.
Another chapter focuses on economic growth where the authors draw on their very considerable work on development economics to draw parallels with issues in rich countries. They suggest, for example, that governments in both poor and rich countries should focus on improving the quality of life as a priority, rather than attempting to raise GDP. A controversial idea but one which they back up with research evidence, and one that could easily also form the basis for an interesting A level discussion. A later chapter tackles environmental questions, particularly climate change. It is packed with interesting insights and case studies which would provide excellent discussion questions in lessons. One example is the increasing purchase of air conditioning units in India which not only makes everyday living more tolerable but also, it is suggested, helps to raise productivity in the workplace. However, the type of units bought tends to be highly polluting, so the authors suggest an effective use of resources might be to encourage Indians to move to less polluting forms of air conditioning through a system of subsidies funded by wealthier countries. A lesson could start by setting out the facts on the use of air conditioning units in India (only 5% of households in India have air conditioning in their homes, compared to almost 90% in the US) and then ask students to come up with possible solutions to the likely huge growth in polluting air conditioning units and to identify the likely economic costs and benefits of each policy.
A highly topical chapter, given the controversies surrounding the trade war between the US and China and the impact of the UK leaving the EU free trade area, evaluates the theory of comparative advantage that forms the basis of arguments in favour of free trade. The authors consider the impact of tariffs and free trade associations locally, as well as nationally. They again identify some interesting facts, for example the import share in the US is around 8%, whereas in Belgium it is above 30%, so trade is much more important to Belgium than the US, where the gains from trade probably only amount to around 2.5% of GDP. Equally topical chapters deal with issues relating to the impact of artificial intelligence and robotics on future employment, how (and if) the state should attempt to tackle poverty and the distribution of wealth. A final short chapter, ‘Good and bad economics’ argues that everyone needs to be alert to bad ideas that are not rooted in evidence, concluding that ‘the call to action is not just for academic economists – it is for all of us who want a better, saner and more humane world …. economics is too important to be left to economists’.
Are there lessons from this book for the teaching of A level (and perhaps some degree level) economics courses? Students certainly need to understand key economic ideas and concepts: these are useful and powerful analytical tools. But do students get sufficient opportunities to explore the really big current global issues using these tools, to evaluate their validity against the evidence and to weigh up possible solutions? Or are we producing students that are competent at manipulating supply and demand diagrams, are capable of calculating elasticities and have an appreciation of trade theory but have little understanding of how the real world operates and how economics may or may not contribute to this understanding? In other words, are we really teaching good economics for hard times?
David Butler is the EBEA Advocacy Lead and former HMI responsible for economics and business education in Ofsted.