This year’s Nobel Memorial Prize in Economic Sciences (yes, we all know it’s not technically a Nobel Prize, but it’s treated just the same) goes to Abhijit Banerjee, Esther Duflo, and Michael Kremer for their studies of poverty. The surprise, especially perhaps for Duflo, isn’t that a Nobel was awarded to these people and this work but rather how early in their careers it came. As with Paul Krugman’s award some time back, it’s the year and the youth that surprises, for it is excellent work that all pundits had marked on their cards for recognition at some point.
As to what the work actually is, well, it’s for doing science. We’re often told economics isn’t quite science. This obviously starts with theory, but it’s wealth we’ve got to explain, not poverty, for poverty is the natural state of mankind. Thus we’re looking for reasons why people and places don’t get rich, not for who or what has caused them to become poor.
But science also involves experimentation. Hypothesize as to exactly why, then go and test it. Change that one factor for one group of people, don’t for another, then see what happens.
For example, maybe see what happens when schoolchildren get worm tablets or iodized salt for two years instead of one – worms are both endemic in poor places and also lead to malnutrition and thus bad schooling and future low wages, a reinforcing cycle of generational poverty. Perhaps go out into the real world and see what it is that’s keeping people poor. The most important part of science is that you’re trying to disprove your hypothesis, looking for that boring fact which proves you wrong.
There are those who would note that there’s not quite enough of this empirical, experimental work in economics, and they’d probably be right.
The results that come out of this examination are useful and something that not all economics manages to achieve. Because there is no overarching reason for poverty. Free markets and capitalism are key opponents of poverty, but as these researchers found, there are still times when capitalism and free markets aren’t enough.
Equally, running from the other end of the ideological spectrum, it isn’t true that just getting government to plan everything abolishes poverty either. Abolishing capitalism and free markets doesn’t help against poverty either. We’re in a world where poverty is a specific problem that requires a specific solution dependent upon the specifics of the situation.
The hopeful result of Banerjee, Duflo, and Kremer’s work is that yes, we can indeed make the world a better place. But it will happen piece by piece and the particular method we use will depend upon the exact problem and the time and place we attempt to solve it in.
One way of looking at this is that we, the assembled historical billions upon billions of humanity, have all been involved in this experiment for thousands of years, trying to figure out just what it is that must be done so that we get richer and improve our well-being. We’ve been operating by trial and error, and not every step has been an advance (see how well communism works for the masses).
This Nobel is for bringing analytical rigor to that exploratory process.
Given the specificity of any particular solution, this work doesn’t have any over-riding answers. That’s the point of it all, in fact. But here’s one example of how the method does indeed make the world a better place.
Perhaps children learn better on a full belly? Or perhaps parents keep children away from school simply so that they can feed them? Or even send them to work so there’s enough money to feed that child? Any of those would suggest that feeding the child at school will lead to more learning and a better attendance record. Michael Kremer has evaluated just that, and finds that it’s true. Feeding children in absolute poverty (the $1.90 a day income kind, not something that exists anywhere in the United States) leads to much better educational outcomes. So if we subsidize school lunch in places too poor to afford it, we make the world a better place.
At which point we come back to one of the older lessons of economics: Just because something should be done doesn’t mean that getting government to do it works. A charity called Mary’s Meals does just this for $20 per child per year. The U.S. government has a program to do the same, which costs about $200 per child per year. Both are feeding millions a year — which is great, but think how much more could be done if it were all being done efficiently?
Banerjee, Duflo, and Kremer are well deserving of their Nobel Prize — not so much for making this vale of tears less dreadful, but for arming us with more of the tools we need to work out how to do that.
Tim Worstall (@worstall) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a senior fellow at the Adam Smith Institute. You can read all his pieces at The Continental Telegraph.
