Affiliate Spotlight: Esther Duflo on deciding how to share

This article was originally published on the Federal Bank of Minneapolis website on April 14, 2021.

MIT’s Esther Duflo has received virtually every major award the economics profession can bestow, culminating in the 2019 Nobel prize— its youngest recipient and only the second woman to be so recognized.

But the achievement she highlights in this interview is an initiative she helped design, a massive effort in May 2020 to alert villagers in West Bengal, India, of pandemic risks. “I’m convinced that it saved thousands and thousands of lives,” she noted in the following conversation from November 11, 2020, toward the end of Duflo’s term as an Institute advisor. “I’m very proud that we were able to seize the moment.”

Focusing on what’s truly important is central to Duflo’s success as a scholar. It’s also key to her leadership of one of the world’s premier policy research institutions, the Abdul Latif Jameel Poverty Action Lab.

As the name suggests, alleviating poverty through effective intervention is J-PAL’s mission. Duflo had the same objective as an advisor to the Institute. Economic growth should increase opportunity, not inequality, she says. “It’s a question of what societies decide about how to share.”

Equality and economic growth: A trade-off?

As you know, the Institute is focused on broadening opportunity and ensuring that growth is as inclusive as possible. But traditionally in economics, there’s a trade-off between efficiency and equality.

You’ve studied the relationship between growth and inequality in the developing world, and your new book looks at rising inequality in industrialized nations.

What is your broad view about the concept of inclusive growth? Must growth be sacrificed to broaden opportunity, or is the notion of a trade-off a fallacy?

I think the whole notion of a trade-off is likely a fallacy, for various reasons. First of all, there is no clear link either on theoretical grounds or empirically between higher inequality and more growth. There is no reason why inequality is necessary for growth. And there is no law of economics that says that growth increases inequality either. So I think there is no causality necessarily going in either direction; therefore, there is not necessarily a trade-off.

Just as a matter of accounting, growth is equality-enhancing if most of the benefits of growth are going toward the poor. And growth is inequality-enhancing if most of the advantages are going toward the rich. Both are possible. I don’t think there is a systematic pattern either way.

It’s a question of what societies decide to do about how to share it, more than anything else. In the U.S., economists have played a big role in pushing this narrative, that maybe there was a trade-off. Starting with the Reagan administration, I think there was a powerful current of economics that started to dominate the conversation, which cast the debate in those terms.

And that was part of the narrative that led to dismantlement of institutions that put a cap or clamp on inequality: the erosion of unions, lowering the top tax rates, and letting the minimum wage erode. All of these things have led to an increase in inequality, but there is no sign that they led to an increase in growth.

It’s possible that they might, but it’s a limited sample, so it’s hard to know. There’s only one United States. But if you look at the performance of the U.S. economy and compare it to Europe since those reforms took place, there is no clear relationship. In fact, if you look at other countries that have more regressive taxes—because most tax reform since the ’60s has been in the form of reducing tax rates—it is not the case that countries that have reduced tax rates more have grown faster. In general, there is no clear relationship either way, which suggests that actually there is probably not much of a trade-off.

In fact, we don’t seem to have much of a handle on what causes growth anyway, although we might have interesting theoretical narratives on growth. If there is a consensus among macroeconomists, it’s on what should be avoided at all costs, like hyperinflation. But there is not a set of recipes that guarantees growth, and it’s not that these recipes therefore lead to a trade-off. So, I think there is actually no trade-off.

Now, growth is fine. There’s no reason not to get growth, but one needs to be careful that it’s not shared in a way that will increase inequality. There is no malediction there; it’s completely possible to have growth without increasing inequality. Since we don’t really know how to make growth happen, it becomes expedient to worry about other ways that we can make sure to improve the life conditions of the poor and least fortunate both across countries and within countries. And we have no reason to think this would come at any significant economic cost in terms of growth.

Covid-19’s unequal impact

"We’re all in this together" is a common slogan in the U.S. these days. But, of course, the pandemic’s impact is highly unequal. Low-income groups and people of color bear the brunt of both its health and economic consequences. Women face disproportionate economic impact. Is that true in the developing world as well?

It’s true in Europe as well, by the way, both in terms of health cost and economic cost, although I think Europe has done a more consistent job in protecting its most vulnerable.

Developing countries? I actually don’t know of statistics that neatly decompose it. It would be my guess that it would be something quite similar.

The economic crisis itself, if you look at the poor countries compared to the rich countries, the impact on the poor countries is much larger because they don’t have a cushion. The rich countries are going to borrow themselves out of it if they want to, and that’s what they have been doing, both in the U.S. and in Europe, and they were completely right to do that.

But for the poor countries, that’s not been an option because if a poor country tries to raise a lot of money, its credit rating would go down. So they haven’t been able to do it, and they have really not been helped much by the countries from the OECD [Organisation for Economic Co-operation and Development]. The reaction from the developed world has been, really, nonexistent. Without that protection, poor countries have felt the full brunt of the economic crisis. That has been a disaster, where people have literally gone back to poverty levels that the World Bank estimates have not seen in decades.

Are conditions ripe for sovereign debt crises?

I don’t know. If there is a sovereign debt crisis in a developing country, it would be almost of our own making, because we know what happened. It’s not that there has been any attempt at willful default. It’s an act of God that we are all there to witness. In principle, there really is no reason there shouldn’t be a renegotiation of the debts. That has happened to some extent. At the height of the pandemic, there were some moratoriums on debt payment, which is why we haven’t seen sovereign defaults yet.

It would be a completely self-inflicted injury to let sovereign defaults happen now instead of doing a mindful restructuring. I hope this is what the IMF [International Monetary Fund] is busy with now, anticipating. That is something that can be done at a minimum to prevent defaults.

One would have hoped that developed countries would have done more. I think the early days of the pandemic, and still today, would have been a good time to spend a tiny percentage of the vast amounts of money we have raised for ourselves to help poor countries avoid turning the coronavirus-induced crisis into a Keynesian-demand crisis. The money could be used similarly to what we have done here: basically sustaining livelihoods so we don’t have a snowballing of the crisis. That’s even more important in poor countries, where I’m guessing the multiplier is even larger.

Some countries put things in place quite quickly to make that possible. They had cash transfer tools in place, but quickly ran out of money. I think we missed an opportunity to be generous in a very effective way.

It wasn’t out of ill will that we missed the opportunity. It’s because countries are so blindsided by their own problems that they didn’t have time to look outward at the developing world. I do hope that the new U.S. administration will have a clearer leadership role to play in this realm. This is an area where we absolutely need to do better. We really do.

The pandemic and J-PAL

How has the pandemic affected J-PAL’s work? How has it interfered with your ability to coordinate and run projects internationally?

It was an interesting moment. Imagine having a huge military ship that you have to turn on a dime. We had to stop field operations almost overnight everywhere and make sure that we took care of our staff.

In India, at any given point in time, we have at least 1,000 people collecting data. We couldn’t just let them go, putting them at risk of needing to find another job. Fortunately, we got a large grant that enabled us to pay their entire salary for a month.

In the meantime, most of our activity turned to phone-based surveying. And, soon, a lot of new projects quickly came to life that had to do with the coronavirus. People used their existing setup and shifted from whatever they were about to do to projects that could be helpful in the pandemic.

As one example, we had a questionnaire that was just about to go to the field about a project involving social activities with old people in Tamil Nadu. The initial idea had been to support older people who were living alone without any social connections. The plan was to organize clubs where they could dance and sing and spend time together. Well, then the coronavirus hit. It was like, “Um, maybe not! That doesn’t seem like a good plan. That’s not going to happen—not tomorrow, not next month!”

At the same time, this is a population of poor, elderly people—the most vulnerable to the pandemic—and we happened to know them because we’d planned these social programs. We started a very quick phone survey to find out how they were doing, and we conveyed that information to the government.

One interesting thing is that some of these people get a small old-age pension, and some do not. We quickly established that the elderly people who got a pension were doing much better in terms of food security and in terms of respecting social distancing.

We shared this information with the government, and they’re now taking it further. They’re finding out who else might be eligible for the pension but not getting it, and setting it up for them. That’s something they can do quickly without having to create a new system. So that’s kind of one example of converting an existing or planned program to something new that’s useful and feasible in changed circumstances.

And, in fact, the reality is that those elderly people are now more alone than ever because nobody can go visit them. So we changed our program from get-togethers, and instead we’re about to launch a program of cognitive behavior therapy by phone. We’ll talk to them regularly, give them tips for dealing with problems they encounter in life, and so on.

Again, that’s just one example. Many people have worked on projects to spread messages on Covid-19 prevention. Others are starting to collect data on what people are doing and how they’re coping.

I was quite humbled actually by how creative and fast people were to use the existing field resources not for the initial plan, which was no longer feasible, but to create and implement something else that was helpful. And that required agreement from the donors who had given money for a particular project to use their funds for something slightly different. They agreed very readily, and we’re quite grateful for that.

That’s kind of a small window into how the whole of J-PAL has reorganized because of the pandemic. And now we are slowly restarting field activity, very carefully.

Field experiments and progress

Fortunately, you were able to get to Sweden for the Nobel ceremony in December 2019, before the pandemic began. In your lecture, you said that every field experiment is “a dot on a pointillist painting.”

Can you explain the metaphor and how, I think, it answers a common criticism of randomized controlled trials?

That’s exactly right. It’s the best way I’ve found to respond to a frequent critique of RCTs, which is, “It’s nice that you get one result somewhere, but how do you know it can be generalized to other places?” The truth is that without a conceptual frame, I do not.

Likewise, even though for your entire life, you’ve seen the sun rise on the same side of your home, without a framework, you have no idea whether it’s going to happen again tomorrow. There’s nothing new there in that philosophy, in neither the question nor the answer. Any advance is a combination of empirical findings and a frame to interpret.

The idea of the pointillist painting is, imagine a painting by Seurat. It’s literally made of dots, and each of these dots on its own is perfectly nice, but it doesn’t generalize to anything. But if you step back and accumulate all these dots, you see the entire painting of, say, a family on the bank of the Seine having a picnic.

Suppose you’re trying to assemble a jigsaw puzzle of that Seurat painting. Just by looking at the rest of the painting, you sort of know what goes next. You have a prediction about where a given piece fits. You might find that your piece doesn’t fit. It might be wrong. It’s not what you expected. But the frame, the painting, gives you good guidance for what you might expect.

That’s how progress happens. The caricature is that you try one small experiment in one place, and then you can take the result to the entire world. That’s not it. The way it actually works is: Do your small experiment; get some findings that are interesting. They might contradict or confirm the theory that you started from, but they give you fodder for the next experiment, and so on and so forth, until you have an understanding of what might be the entire shape or contour of that problem.

"Graduating from poverty"

What you’ve described makes me think about your 2015 paper in Science that describes a multifaceted intervention in six countries. The program was very effective, very powerful.

Could you give a quick description of the intervention and the results? To what extent are the findings particular to those countries and villages, or are its lessons universal? Are they isolated dots, or a coherent painting?

The program was designed and first piloted and implemented by a Bangladeshi organization called BRAC. They realized that their microfinance programs left some people out because they were too poor to even take microfinance. Usually those are people who work as farmhands, as beggars; many are single women. These are people in very, very difficult circumstances. BRAC wanted a program that addressed the needs of these people and designed this intervention that is sometimes called a “targeting the ultra poor” or “graduation” program. The idea is that participants “graduate out of poverty.”

It’s a big-push program. It gives participants a productive asset like a cow. It gives support for 18 months to take care of the asset. And it provides financial support in the form of a stipend in the first few weeks. So it’s expensive per person.

It was evaluated in Bangladesh at a quite large scale, and they found a super large effect. We repeated this evaluation in six other countries, and what was really nice is that BRAC was sort of piloting the six others. They all met very regularly in Paris and discussed how the program was adapted in their cases. So it’s very much the same program as in the philosophy of BRAC, the same approach everywhere. It’s usually the case that when you replicate a program, things change. You improve it. You adapt it. But not in this case.

What’s remarkable is that it was very effective everywhere, except in one country where it didn’t work—Honduras.

I think we learned two things. First, from the policy point of view, when you have a program working in six different countries and most continents, you have pretty good confidence that this can be expanded elsewhere. Since that time, there has been replication in more places—even in Afghanistan—and it still works. So it seems to be super robust. It can be adapted and effective in all of these very poor countries for very poor people.

This has an immediate policy implication and in fact, for example, in India now, the ultra-poor program is a part of anti-poverty policy of the government in some states. So, now, it’s reaching hundreds of thousands of people, based on this evidence.

The second thing is that it led to a whole research agenda. This is like a very small painting, if you will. This good program that can be run in various places led to a research project trying to answer the question: “What’s the magic of this program? Do you really need to do everything at once, or can you do it a bit more cheaply? Why does it have this effect? Is there a poverty trap that it allows people to get out of?” From those new experiments and findings, you learn things that are maybe more generalizable to other places.

For example, there is research in Bangladesh on the fact that the program worked better for the richer among the ultra-poor because they were more likely to go above a threshold that would allow them to escape poverty. But the people who were so poor to start with that the program didn’t provide enough assistance to cross the threshold stayed behind and stayed poor. With that finding, we are learning that this may be the first really solid evidence that poverty traps do exist.

So there are these two things going together: the policy process, which comes from repeating the same program in lots of places and being quite convinced it’s robust, and the thought process of understanding better the mechanism of the persistence of poverty in developing economies. The two agendas are always moving together. Sometimes one gets more prominence, and sometimes the other gets more, depending on the nature of the experiment.

Incidentally, we have recently passed the 10th year of these intervention programs, and we’re about to post an NBER working paper of a 10-year follow-up of the India sample. People are still doing significantly better. It’s quite remarkable that people are doing better 10 years later, much better.

Impact of Good Economics?

Let’s talk about your most recent book, Good Economics for Hard Times. The book is a pleasure to read, partly because it’s beautifully written, but also because—like the big-push strategy you’ve just described—it is really quite hopeful. As you put it in the preface, “We wrote this book to hold on to hope.”

But you also point out that the general public doesn’t trust economists, and that few people change their views when told what economists think about an issue.

Are you optimistic, then, that your book can change opinions about how to approach our current hard times?

I don’t know if it will have an impact. I think one has to try. The way we tried to write this book is a bit different from the way that we see economists talking to people usually, especially on television.

When economists talk among themselves on Twitter, the conversation can be super lively, with arguments going both ways. But when you hear economists on television, usually it’s to give you a prediction of what the GDP is going to be in the next month, or asserting a position without much explanation for how he or she arrived at that position.

So, “trade is good, trust us.” Or “immigration is good, trust us; we know it.” And “better times are right around the corner if only you tighten your belt a little longer.”

What we try to do in this book is to say, “Look, give us more time and follow us along our line of reasoning. You might agree with us at the end of the day, but maybe not.” We try to make it clear when we are injecting our political slant. But we also try to make clear, “These are the facts. This is some logic you might follow. This is where you might depart. And, then, come to your own conclusions.”

I think we need to do a bit more of that as economists. We tend to talk like oracles when we should, I think, be much more tentative in what we are saying and explain much more. And then maybe people will listen to us.

I don’t know if our book will have an impact, but we try to put our message out in as many forms as we can. It would be too arrogant to think it will have a significant impact, but if it changes some people’s views, or enriches their views, that’s great.

Covid-19 messaging

One message that clearly was effective is described in your recent NBER paper about effective messaging on Covid-19 in West Bengal.

Could you tell us more about that intervention?

Yes, absolutely, because this is something I’m very proud of, because this I know had an impact. I’m generally very proud of the economics profession, but especially when the coronavirus hit. There was really a profound desire from everyone to try to make themselves useful. I’ve just described the various efforts by J-PAL, and this was another one of them.

My husband, Abhijit Banerjee, also a Nobel Prize laureate, was asked to be the chairman of the coronavirus response team in West Bengal. So he’s perhaps like the [Tony] Fauci of West Bengal, except he’s not a medical doctor [laughter]. He’s chair of the team, which is made up of doctors who actually know what they’re doing medically, but he’s animating it, directing it.

We knew from previous work that some of us have done in Indonesia—Ben Olken, Arun Chandrasekhar, and others—that stars and celebrities are very influential in conveying these messages, so we were looking for stars to pass along very basic social distancing advice to households in India at a time when it was completely confusing.

It finally dawned on us that the best star we had was right on our team! Abhijit Banerjee has been a bit of a household name in West Bengal—where he’s from—since he won the Nobel Prize. So he recorded the messages himself, and we sent them at randomized, controlled times to randomized locations to 25 million subscribers to Jio, one of the phone networks there.

They had a large impact on people’s reporting of symptoms to the local health worker, which is important, as well as on their self-reported activities.

The coda to this episode is that since this was effective, Abhijit recorded messages that were sent in two rounds to subscribers with Airtel, a bigger subscriber network. One message was about asking people to be kind to coronavirus patients and not to shun them out of the village, and the other was about how travel during Durga Puja, where people normally come in droves to town and make pilgrimages to makeshift temples. So, potentially, a scene of millions of people crowded together, coming from everywhere and going back. It could have been a coronavirus disaster.

Abhijit worked with others in putting together something that was feasible. You cannot say, “Cancel the holiday.” That’s not really an option. So something that was feasible, but would improve things. And we sent one more round of messages urging people to stay home if they’re older, and if they do go out, visit just one location, and wear a mask.

And quickly after that, Durga Puja happened, and we saw that the attendance was down a significant amount from previous years. So it was much, much, much lower attendance. And we can now see whether there was an uptick of coronavirus and we don’t see that.

So, of course, it was not just his messages. There was also the chief minister went on television to relay the message. But this entire effort to convince people with clear messages about what to do seems to have been very effective. I’m convinced that that saved thousands and thousands of lives ultimately. You don’t get to do that every day. Of course, I wish we’d never had to do it, but I’m very proud that we were able to seize the moment and use our platform to have an impact.

Diversity in economics

A last question, about diversity in economics. You know well that women and minorities are woefully underrepresented in economics. The profession finally seems to be recognizing that as a problem. The American Economic Association has taken some steps. Perhaps the Nobel committee is recognizing it, with you as just the second woman to win a Nobel in economics.

You’ve done research in India about the importance of women in powerful positions, and we’ve just been discussing the ability of stars to convey messages.

Do you think that your being recognized with a Nobel will bring more girls and young women into the field?

Yes, and I think it’s not just me as a woman, although I take that as a challenge. I think that it’s also about the field. It’s the fact that our Nobel Prize was not for theoretical work, not for macroeconomics. What was recognized by the prize was something that directly touches people’s lives in obvious ways. I think that was very relatable.

Many people, especially young people, who want to do good things in the world, don’t go into this field because they don’t see this as the right path. They don’t see that economists are doing anything to improve the world. But, in fact, we are. Many economists study inequality, discrimination, the environment, and so forth. In fact, these are some of the field’s most vibrant areas. But there’s not much of a public face for that for high school students, college students, et cetera.

I think a Nobel Prize is such a big spotlight on the field for one moment in the year that it is helpful. I want to use the platform to continue relaying that message.

My hope is that it’s not just going to encourage women to enter the profession, because they see a younger woman who has won a Nobel Prize, but that it will also encourage anyone who is interested in social issues and therefore also more minorities, who now might look at economics and say, “I think I’ll do law instead, and at least make some money.”

In fact, there are very excellent, young Black researchers who are working on social policy issues such as discrimination. There are just not very many. You are right that the AEA is taking some steps in particular for women in the profession, though it was quite delayed in this reckoning.

But I think the steps for minorities in professions are still quite tentative. The status of women in the economics profession is not great, but the status of African Americans and Latinos and Native Americans is much worse. We need to be much more imaginative and give much more priority to tap into that talent because it is there; it’s just not choosing economics or, if it is choosing economics, it’s not given the tools to succeed.