AMNA NAWAZ: As Paul Solman reported recently, economists Esther Duflo and Abhijit Banerjee
won this year's Nobel Prize for their hard-nosed work on poverty, conducting experiments in
developing nations, like Banerjee's native India.
They wanted to see what actually works and what doesn't to improve the lives of the poor.
But the married couple has also cast their critical eyes on the developed world and economic
orthodoxy in their new book, "Good Economics for Hard Times."
Paul zeros in on the ideas of their book for our series Making Sense.
ESTHER DUFLO, Nobel Prize Winner for Economics: We felt that there was a lot that economics
could teach us about the important issues that people are fighting about today.
PAUL SOLMAN: Important issues, say Esther Duflo and Abhijit Banerjee, like immigration,
which, they say, so many economists simply get wrong.
ABHIJIT BANERJEE, Nobel Prize Winner for Economics: They say, oh, well, you know, it's supply
and demand. If supply goes up, price will go down.
PAUL SOLMAN: That, if there are more people willing to work cheaply, then wages will go
down.
ABHIJIT BANERJEE: Exactly. There is no evidence for it. In fact, there are many, many such
episodes that have been studied, and for low-income workers, there is no evidence that the influx
of large numbers of outsiders does anything to their wages.
PAUL SOLMAN: Instead, he says, the influx of workers stimulates the economy.
ABHIJIT BANERJEE: They're going to buy stuff. And they often buy stuff that other low-income
workers sell.
PAUL SOLMAN: We actually saw this in immigrant-friendly Utica, New York several years ago.
Bosnian refugee Sakib Duracak, who came in the 1990s.
SAKIB DURACAK, Bosnian Refugee: At the time when we came in Utica, it's a relatively very
dead and poor city.
PAUL SOLMAN: But immigrants like Duracak revived the city by working and spending.
ELLEN KRALY, Colgate University: To have an economy, you have to have workers, and you
have to have consumers.
PAUL SOLMAN: Professor Ellen Kraly teaches demography at nearby Colgate University.
ELLEN KRALY: The influx of refugees to Utica allowed us to retain some smaller industries
that were looking for highly motivated labor.
PAUL SOLMAN: Moreover, say the newly-minted Nobels, the work the immigrants do doesn't
compete with native workers, who, for the most part, won't take the same jobs.
I was skeptical.
But look at union construction workers. They used to make a lot more money, adjusted for
inflation, than they do now, due to, it seems, the influx of immigrants.
ABHIJIT BANERJEE: I think that -- that's a very good example of something that hasn't
been commented on, which is, high-skilled laborers do lose when there's an influx of
other comparable people.
And in some sense, the political conversation has it backwards. The high-skilled immigrants
have actually an impact on the wages of comparable people. The low-skilled immigrants are the
ones who don't.
PAUL SOLMAN: Another chapter of the new book is called "Pains From Trade," playing off
a supposed economic truism, gains from trade.
ESTHER DUFLO: Economists repeat until they are blue in the face that trade is good for
you and that trade is good for the country. But it's based on one very strong assumption.
PAUL SOLMAN: The assumption? That people who lose jobs to foreign competition will simply
up and move to get a new one.
ABHIJIT BANERJEE: Except that, in the last 40 years, there's been enormous decline in
mobility. Seven percent of the people used to move from county to county.
PAUL SOLMAN: In the U.S.
ABHIJIT BANERJEE: In the U.S. 40 years ago. Now it's 4 percent. That's almost a halving
of mobility. People have stopped moving.
ESTHER DUFLO: It's the emotional investment in the community, your identity as someone
who has been working in a factory for many, many years. Maybe you have become a manager
of your line or something like that.
PAUL SOLMAN: Plus, in factories I have visited over the years, workers develop specific skills
that are non-transferable.
At a Milliken textile mill in Jonesville, South Carolina:
RAYMOND HOOD, Textile Worker: You go through about a 12-week training program, and then
you need probably nine to 10 months of practical experience on the machine before you get really
competent and actually know what you're doing with the machine to be able to make it perform
correctly.
PAUL SOLMAN: Same story at a corn broom factory in Alabama, which we visited back in the early
'90s on the eve of NAFTA, when debate over trade with Mexico was raging.
Technically, this was unskilled labor, but it took me eight minutes to do what the average
worker does in one.
And I'm basically hitting myself on the index finger at this point. No, that was the thumb
getting hit, getting hit.
Back then, it took a year or so to master this skill, useless anywhere else. But when
we returned 10 years later, the job was so mechanized, said the CEO...
ED PEARSON, CEO, Crystal Lake Manufacturing: If you can screw in a lightbulb, you can make
a broom.
PAUL SOLMAN: Real expertise rendered obsolete. Yes, we have trade adjustment assistance to
supposedly teach new skills, but when you bother to crunch the numbers, they show that
what laid-off workers lose in wages alone is far greater than what's spent to reimburse
and retrain them.
A third and last example of where popular economics has led us astray, say the economists,
is taxes.
Here's the architect of Republican tax cuts, Arthur Laffer, making the classic argument
a few years ago.
ART LAFFER, Former White House Economic Adviser: If you raise tax rates, you collect more money
per dollar of income. But then you have the economic effect, which, if you raise tax rates,
you reduce the incentives for people to do the activity, and you will get lower income.
PAUL SOLMAN: Arthur Laffer told me that he moved from California to Tennessee, for example,
because there was a lower tax rate.
ABHIJIT BANERJEE: It would be really sad if he didn't move. A nice thing about economics
is, we deal with large data sets. There's no clear evidence that, if you raise taxes,
the rich stop working.
PAUL SOLMAN: Nor is there any credible evidence, say the laureates, that benefits keep the
poor from working.
Is there not -- the welfare queen or welfare king stereotype, it's just not true?
ESTHER DUFLO: There's no evidence for it. Neither in the U.S., nor in poor countries
do we see that, when people are given more generous help packages, they become lazy.
PAUL SOLMAN: Evidence, much of it upending the conventional wisdom in economics, which
is what, applied to poverty alleviation, earned Esther Duflo and Abhijit Banerjee their Nobel
Prize.
This is Paul Solman in Boston.