A very informative book that addresses current social issues. Duflo and Banerjee effectively counter criticisms related to immigration, trade, and other prevalent beliefs among Americans.

One disappointment is that some chapters are mainly a compilation of references to papers and self-evident observations in economics.

My Notes

On immigration

People usually believe that those who immigrate do so for economic incentives. But Abhijit Banerjee and Esther Duflo explains that economic incentives aren't enough to get people to move.

• Low-skilled immigrants take on jobs that locals don't aspire to, work in the worst cities, and allow citizens to move elsewhere. They don't really compete with natives, whose jobs are more communicational and rewarding.
• High-skilled immigrants are paid above minimum wage and bring in skills and talent, which is not a problem for most.

Furthermore, immigrants contribute to the economy by consuming.

There is a truth about immigration that is never told: people are most likely to stay home than to risk their lives migrating to another country. Those who do migrate are usually caracterized by a substantial drive — hence all the successful immigrant entrepreneurs we see today.

Trade is Hard

The common belief around trade is the theory of David Ricardo on comparative advantage.

Comparative advantage is the idea that countries, by doing what they are relatively best at doing, will grow more and better (win-win scenario). In contrast, absolute advantage praises the production of a country’s best industry, therefore leading to huge inequality if a country is best at everything.

Ricardo’s theory underlines that there is no way to think of trade without thinking about all the markets together. China could win in any single market but not in every market.

Stolper–Samuelson Theorem (derived from Heckscher–Ohlin Model) states that opening up trade should increase GNP in all countries, and in poor countries inequalities should go down; however, inequality can go up in rich countries (at least, before redistribution).

But between 1985-2000, Mexico, Colombia, Brazil, India, Argentina and Chile all opened up to trade by cutting tariffs. Over the same period, inequality raised.

It is essentially impossible for an isolated producer in the third world to start competing on the international market, however good its products is and however low its prices are.

• The gains from international trade are fairly small for a developed country like the US, essentially because it is capable of producing most of what it consumes (which is not the case for poor countries).
• However, there is no magic bullet when it comes to entering international trade: reputation, quality, and trust matter, and these take time to build.
• Shutting up trade with China will not really affect the US economy, but it will affect hundreds of thousand of workers, especially in agriculture, since 1/5 of agricultural exports go to East Asia (China alone buys 16%).

Wants vs Needs vs Likes

Gary Becker and George Stigler wrote:

Even when our preferences do not directly depend on what other people do, the behavior of others can convey a signal that alters our beliefs and our behavior.

Today's society is more polarized than ever, and part of the racism, sexism, and other forms of discrimination can be attributed to what economists call statistical discrimination.

For example, Black people are less likely to be hired by managers because they are statistically perceived as more prone to crime and violence (as opposed to taste-based discrimination). Consequently, without any specific information about a candidate's criminal record, employers often rely on these statistical beliefs to infer something about the individual.

Many studies have shown that people from different backgrounds can collaborate effectively and mix well if they are provided with common goals. This is particularly evident in situations like team-based activities in summer camps for children.

Since our preferences are strongly influenced by those around us, it's not surprising that homophily—the tendency for people of the same race to associate with each other—is a common phenomenon.

Herd behavior generates informational cascades: the information on which the first people base their decision will have an outsized influence on what all the others believe.

The problem of such thing is the lack of outside perspectives. Cass Sunstein refers to these situations as echo chambers, where like-minded people reinforce their views by only listening to one another.

Social networks are good examples of echo chambers, as they have mainly failed to integrate users on divisive issues.

A 2016 study on 2.2 million politically engaged Twitter users in the US found that while there are 90 million network links among them:

• 84% of the followers of conservative users are other conservatives
• 69% of the followers of liberal users are liberal

This creates an extreme polarization, resulting in "unabashed expressions of vituperation".

According to the authors, the most effective ways to fight against prejudice is to convince citizens it is worth their while to engage with other policy issues.

Cash vs Care

Many debates in social policy center around the distribution of money (cash) or other forms of goods (care).

According to Duflo and Banerjee, there is no evidence that people misuse cash on alcohol or tobacco when receiving money.

In fact, in some poor villages in India, people prefer to receive food each month, not only because it saves them transaction costs (such as going to the grocery store or traveling) but also because money is more easily spent—and therefore more easily misused.

Some solutions proposed to this day:

• UBI (Universal Basic Income), but too expensive to be implemented today
• NIT (Negative Income Tax), where everyone is guaranteed to receive at least a minimum income
• UUBI (Universal Ultra Basic Income), which is more realistic than UBI