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Is There Hope for Economics? Yes – At Last!

By Shlomo Maital

Kremer, Duflo, Banerjee

   Almost eight years ago, in November 2011, I wrote a blog about, among others, two MIT economists named Duflo and Banerjee, who FINALLY were asking the right question (why are so many people in the world so poor, and what can be done about it?) and FINALLY answering it, by doing field-based experiments with real money and real people, instead of building mathematical models of Alice in Wonderland. *

     Together with Harvard University Professor Mark Kremer, they have been awarded the 2019 Nobel Prize in Economics. Duflo is the youngest economist ever to win it (she’s 46) and only the 2nd woman. She and Banerjee are spouses. Banerjee is of Indian ancestry. Duflo is French. (President Trump: Still think all immigrants are drug dealers, murders and rapists?)

     I am an economist. And I was born too soon (in 1942). If I had been born in, say, 1982, I would have caught the wave of behavioral economics, which applied psychology to understanding how people really behave, instead of using abstract math. (My wife, a psychologist, and I published papers on behavioral economics as early as 1972 – but at that time, nobody was listening). If I had been born in, say, 1997, I might have done meaningful research in the field that helped build evidence-based policy.

   Here is an example of powerful field experiments that change millions of lives, that I wrote about in my 2011 blog (based on an NYT column by Nicholas Kristof):

     “Prof. Michael Kremer, a Harvard economist, helped pioneer randomized trials in antipoverty work. In the 1990s, Kremer began studying how to improve education in Kenya, Africa, trying different approaches in randomly selected batches of schools. One intervention he tried was deworming kids — and bingo! In much of the developing world, most kids have intestinal worms, leaving them sick, anemic and more likely to miss school. Deworming is very cheap (a pill costing a few pennies), and, in the experiment he did with Edward Miguel, it resulted in 25 percent less absenteeism. Even years later, the kids who had been randomly chosen to be dewormed were earning more money than other kids. Kremer estimates that the cost of keeping a kid in school for an additional year by building schools or by subsidizing school uniforms is more than $100, while by deworming kids, the cost drops to $3.50. (In a pinch, kids can usually go to “school” in a church or mosque without a uniform.)”

     p.s. The Government of Kenya, impressed by Kremer’s study, supplied deworming medicine to nearly all Kenyan children, vastly improving their lives.  It is incredible that in the West, we give deworming pills to our puppies and pet dogs regularly — but only Kremer thought to try giving it to African kids!

     In the 1880’s the Economics profession made a terrible mistake. Two leading economists, Alfred Marshall and William Stanley Jevons, were rivals. Marshall had a practical, behavioral evidence-based approach. He defined economics as the “study of people as they work and live in the ordinary business of life.” Jevons? Well, he was a failed mathematician and physicist. He slapped together a few equations, to create an abstract model of economics – and economists loved it! They swallowed it! They dumped Marshall.

     Why? Because the queen of science at the time was physics, and physics was highly mathematical. Maybe…economics could be as prestigious and ‘scientific’ as physics? Problem is – people are not electrons. You study them, not by quantum mechanics, but by observation and experiment. But it took economics 130 years to figure that out. And in the meantime, wrongheaded math-based pie-in-the-sky economics detached from reality did huge damage to the world – lately, in 2008, when we reaped what free-market greed-is-good economists had sowed..

     Banerjee was born in Calcutta, India, to Nirmala Banerjee, a professor of economics and Dipak Banerjee, a professor and the head of the Department of Economics. Duflo was born in 1972 in Paris. She is the daughter of Michel Duflo, a mathematics professor, and his wife Violaine, a pediatrician. According to Wikipedia, “during Duflo’s childhood, her mother often participated in medical humanitarian project”.

     In acknowledging her Nobel, Duflo noted that far too few women choose economics as a profession, and expressed the hope her Nobel would inspire more women to enter the field.   What will you do with the money? journalists asked. She responded that when Marie Curie won her Nobel, she used the money to buy one gram of radium. Duflo said she too hoped to use the resources to further field research on poverty.

     As Esther Duflo said herself, the importance of her Nobel, is that it will inspire other young economics students to follow in her footsteps, and ask real questions and find real field-based human answers on which effective policy can be built.

     I wish I could start my career again. You have to know when to be born.

       * Abhijit Banerjee & Esther Duflo, Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty. PublicAffairs (2011). Their new book: Good Economics for Hard Times, will be published in November 2019.

 

 

At Last, A Nobel – At Age 97!

By Shlomo Maital

John Goodenough

This year’s Nobel Prize for Chemistry has been awarded to three scientists: John B. Goodenough, M. Stanley Whittingham and Akira Yoshino share the prize.

Goodenough is American, Whittingham is British and Yoshino is Japanese.

The three won the prize for their work in developing lithium-ion batteries, which are ubiquitous in our lives, including in all our cell phones.

Goodenough has the best story. According to the Wall Street Journal,

“At age 97, Dr. Goodenough of the University of Texas in Austin, who was born in Germany of American parents, is the oldest person ever to receive a Nobel Prize.

   “I’m extremely happy that the lithium-ion battery has been able to help communications through the world,” Dr. Goodenough said during a call with reporters from London, where he is receiving the 2019 Copley Medal for his contribution to materials technology. While there, he learned he had also won this year’s chemistry Nobel.

“It’s been a very eventful day,” he added .”

   The three have been touted for a Nobel for over a decade. Thank goodness, Goodenough lived long enough to win it (Nobel’s are never awarded posthumously).

       Don’t you love his wonderful understatement, about an “eventful day”?

   A member of the Nobel Chemistry committee noted: “Lithium-ion batteries can be combined with energy sources that fluctuate over time, such as solar power, to provide a seamless power supply. The batteries have also enabled a switch from fossil-fuel transportation to electric transportation.”

      p.s.  Some weeks ago, I wrote a magazine column about “Snow-Capped Idea Volcanoes” — senior citizens who have creative ideas and implement them.  In it I mentioned Goodenough: “John Goodenough and his team at University of Texas (Austin) “has just set the tech industry abuzz with his blazing creativity”, wrote Pagan Kennedy, in the New York Times, in April 2017.   “He and his team filed a patent application on a new kind of battery that, if it works, as promised, would be so cheap, lightweight and safe that it would revolutionize electric cars and kill off petroleum-fueled vehicles.”    

 

 

Labor Unions’ Last Stand

By Shlomo Maital

   Some 50,000 General Motors workers, members of the UAW United Auto Workers, are striking; the strike is over 3 weeks old, and each side has now hardened its position.

   Strikes were quite rare for two decades or more in the US. But last year, half a million workers went on strike. So – what is going on?

     GM workers face a bleak future. Car producers are shifting to electric vehicles (including in China) and producing those takes far fewer workers. Moreover, car production today is highly roboticized.  GM, which was bailed out by the US government during the 2008 financial crisis, is now highly profitable; but it has no intention of getting locked into an expensive labor contract, when it plans to shed thousands of workers and close plants.

     In the 1950’s a third of all workers belonged to unions, in the US. Today it is just about one in ten. As manufacturing migrated to Asia, and services dominated, unions shrank. Service jobs are mostly non-union. Moreover, employers switched to hiring temporary or contract workers, who have no social or pension rights, to cut costs. Google, for instance, employs more such ‘temps’ than regular employees. (Recently, a group of Google contract workers in Pittsburgh organized themselves into a union – a trend that may spread).

     GM workers get minimal strike pay – but they are determined. So is GM. In a global economy, GM can produce anywhere – in Mexico, or even in China. So labor has become a commodity whose price is cheap and getting cheaper at times. This has devastated the middle class, where once UAW jobs paid $24 an hour and more. Those jobs are disappearing.

     The impoverishment and commoditization of labor in the US– one of the negative consequences of globalization – have been largely ignored, even by Obama and the Democrats.    One result, I believe, was Trump’s election. Trump’s promise to bring manufacturing back to the US is utterly empty. But his voters, blue collar workers, choose to vote for someone who voices their pain, even if they know his promises are utterly hollow.

   At the Battle of the Little Bighorn, Custer’s last stand, the Lakota, Cheyenne and Arapaho tribes defeated the US Army’s 7th Cavalry. The underdogs won.

     I’m afraid that in the UAW’s last stand against GM, the labor underdogs will lose. And the only Democrat presidential candidate who seems to notice is the dark horse candidate Andrew Yang, who wants to pay workers a guaranteed income. Sooner or later, we may all come to realize that there is no other choice.

 

      

 

 

 

The Death of Truth – And What We Can Do About It

By Shlomo Maital

Bloomberg reports that the new Chinese “face swapping” app, called Zao, already has many millions of users:

     Chinese face-swap app Zao rocketed to the top of app store charts over the weekend, but user delight at the prospect of becoming instant superstars quickly turned sour as privacy implications began to sink in.     Launched recently, Zao is currently topping the free download chart on China’s iOS store. Its popularity has also pushed another face-swap app, Yanji, to fifth place on the list. Behind Zao is a company fully owned by Chinese hookup and live-streaming service Momo Inc. President Wang Li and co-Founder Lei Xiaoliang, according to public company registration documents.

   Let’s face facts. We used to say, “I’ll believe it, when I see it.” Or: “I trust my own eyes”. Or “I saw it myself!”. Or: “Show me!”.   That meant — seeing is believing.

This is no longer the case. With Zao, you can place your own self at the prow of the Titanic, instead of Leonardo DiCaprio.

   This could be amusing. But it’s not. What it means is, you can no longer believe your eyes, or your ears, for that matter.   How does one navigate, in a world where the line between truth and falsehood is erased?

   In 2016, this lie was spread and widely believed: “ … emails about social gatherings involving “pizza,” were code for something much darker; a secret underground human trafficking/child sex abuse ring, involving senior members of the Clinton campaign.”

   Many years ago, a TIME magazine cover proclaimed, “God is Dead”. Perhaps today, there could be a cover, “Truth is Dead”. If you can’t believe your eyes or your ears… what do you do?

   I have no idea. But here is one very small insignificant suggestion. Make “critical thinking” a key part of all school and university curricula. Let each of us renew and hone our skill at thinking critically, and questioning, about everything we hear and read.

   Is this sad? Is it sad we live in a world where nothing can be taken on faith, where everything has to be questioned, no matter what the source?   And it won’t get better. As experts find ways to identify “face swaps”, those who produce such software find ways to defeat them. Why? Because there is far more money in selling face-swap apps than there is in finding ways to expose them.

     Huxley’s novel Brave New World focused on a future world, in which everyone lost their individual identity. That hasn’t happened. Today’s brave new world is one where everyone is losing the crucial value of trust and truth.

    If you have to think critically about everything, then you have to think critically about everyone. If you can’t trust anything, then you implicitly can’t trust anyone. Somehow, some smart people are going to have to find a way to deal with this. Because the very fabric of society is coming apart, as a result.

Blog entries written by Prof. Shlomo Maital

Shlomo Maital
October 2019
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