Conversations with Tyler - Esther Duflo on Management, Growth, and Research in Action

Episode Date: December 18, 2019

Want to support future conversations? Visit conversationswithtyler.com/donate. Esther Duflo's advice to students? Spend time in the field. "It's only through this exposure that you can learn how wrong most of your intuitions are and preconceptions are," she explains. For Duflo, it was time spent in the Soviet Union on the brink of collapse. While there she saw how Jeff Sachs used the tools of economics to advise policymakers on matters of crucial importance. To her it seemed like the best job in the world—and she began to pursue it in earnest. Now it is she who is advising governments on how best to reduce poverty, having co-founded one of the leading policy research centers in the world. That work, together with that of frequent collaborators Abhijit Banerjee and Michael Kremer, has now been honored with the Nobel Prize.  She joined Tyler to discuss that work, including how coaching increases the effectiveness of cash transfers, why she cautions against falling in love with growth rates, what France gets right about child-rearing, the management philosophy behind her success building J-PAL, how she briefly became the face of an anti-Soviet revolution, the under-looked reasons behind the decline of geographic mobility in the United States, what rock climbing can teach us about being a good empirical economist, her daily musical move from Bach to Bob Dylan, and more.  Read a full transcript enhanced with helpful links. Recorded November 12th, 2019 Other ways to connect Follow us on Twitter and Instagram Follow Tyler on Twitter  Email us: [e-mail] Subscribe at our newsletter page to have the latest Conversations with Tyler news sent straight to your inbox. 

Hi, everyone. This is Tyler of Conversations with Tyler. I hope you've enjoyed listening to and learning from this year's conversations as much as I have. For me, it's the single most rewarding and instructive thing I do. This year, some of my absolute favorites have been, for instance, Neil Stevenson, talking about science fiction, the future, and innovation, Masha Gessen, on Russia and Putin and the history of communism. Russ Roberts on Market Economics. Carl Knauzzi. on Norway, Henrik Ibsen, Norwegian Art, Emily Wilson on the ancient Greeks, the classics, and Homer's Odyssey. If you've benefited from this podcast and enjoyed it, please consider making a financial contribution before the end of the year at Conversations with Tyler.com slash donate. All donations will go to the production of the show, including, first, new conversations every other week. And note that unlike most other podcasts, we often have to pay to travel to our guests,

and we have never done a remote interview. Second, live shows in Arlington, Virginia, New York, San Francisco, Washington, D.C., and more locales to come. Third, full readable transcripts of every episode enhanced with helpful links. For me, doing conversations with Tyler is about learning from other people and teaching other people how to learn. and that's what I try to do in each episode is to show how listening and asking good questions produces knowledge and how that can help make the world a wiser place. So if you believe in the power of learning through listening and reading,

as I do, please support the podcast at Conversationswithtyler.com slash donate. Thanks. Conversations with Tyler is produced by the Mercatus Center at George Mason University, bridging the gap. between academic ideas and real-world problems. Learn more at arcadist.org.

And for more conversations, including videos, transcripts, and upcoming dates, visit Conversationswithtyler.com. Today I'm very honored to be here with Esther Duflo, who recently has won a Nobel Prize in Economics, the youngest economics winner ever. And today, our date of recording

is also, I believe, the publication date for her new book with Abhijit Vonerjee, and that is called Good Economics for Hard Times. Esther, welcome. Thank you very much. Thank you for having me. My first question has to do with what I think is maybe your most important paper, and that's the 2015 paper in science with Abhijit, Dean Carlin, and some other co-authors.

And there you show that a cash transfer to the very poor combined with training and coaching has super high rates of return. Why don't people study that more? It seems to be the most potent intervention we have to fight poverty other than migration. So I think it has been studied a lot and it has also been adopted as policy after this original study and other studies. So the original project comes from Bangladesh and there actually has been a study and a long grand study in Bangladesh by Robin Burgess and others who are now looking at a household 10 year hence. And you continue to see large differences between the households who got the transfer. and they have a recent paper that they just released to say that they continue to study it,

where they are really putting a lot of theory into it to look at the data through the lens of asking, actually, is there a poverty trap in which some of this household have fallen? And they show that, in fact, there is such a thing with a threshold of wealth above which, if households can go above, they can grow to a point where they are significantly better off, and if they are below it, they go back to wherever they come from. So I think that's a very important paper that is making a big splash and show people continue. And in our case, the part of the study was that I was the most involved with was in West Bengal. And we also continue to study them after 10 years.

We are studying their children as well. We are studying the impact on migration to go through not just, oh, there is an effect, but how all of this effect are kind of building on each other. As I understand the paper, there's a cost-benefit ratio of 133% to 400, 33% across six countries. And that's enormous. What exactly about the mentor makes the difference, as opposed just giving people cash?

What is the mentor or the coach actually teaching? So just from the experiment, this particular experiment would be hard to tell because one could say, well, you should try to do cash only and then we can see. But subsequently, Abidgett and Din Kallon were involved in an experiment in Ghana where they just gave goats.

So they call it a goat drop paper. So just goats were given. and without the coaching. And there they find very clearly that the coaching makes a big difference, that people who you give just the assets to have more assets, but it doesn't serve as a springboard for more activities. So descriptively, what the coach do is two things. Number one is avoid the temptation of liquidating the assets quite early.

So if you give people, you know, cows and they don't feel confident using them, then the easiest thing to do is to sell them. and then they have cash, but they don't have a productive asset anymore. The second thing is to provide the complementary human capital for taking care of your assets. So, for example, when people are giving cash, some people are given cash to start a petty business. But they have no idea even how to go to the market, because the poorest person in a village are also excluded from productive activities. they have not really been working

or if they have been working, it's that made in very local circumstances. They really have no idea. So the coaches are physically taking them to the market. Like, this is how you take the bus. And this is where you buy the trinkets that you're going to send in the village. And this is where, you know,

how you bargain for your trinkets and then come back with the trinket and sell them. So there is an amount of technical skills, if you will. And the third component, which is harder to quantify, but probably very important as well, is confidence training. So they are meeting in groups,

and those are people who have not been involved in productive activities often, are living of Olms or very petty works, and they are making them kind of confident that they can do it. And how scalable is the coaching, in your opinion? That's a good question to which we should have an answer soonish, because there is now scale up of these programs

in various countries, and in particular in India, some state governments in India are scaling this up as part of their program. So they are mainstreaming it as part of their program, still with the support of the original microfinance institutions that have been running this program, but hiring many, many, many people. So you will be able to see whether this was, you know, you could do this with like the best NGO worker of the country and you only have 100 of those and then that's done,

or whether this is something. that can be spread. What is encouraging in this respect is that in Bangladesh, the program is huge as it is. It's enormous. It reaches hundreds of thousands of families as it is. So to some extent, we already have the answer to how skillability is because it's already skilled.

And even the evaluation by Robin Burgess and others was done on a quite large scale. Have you ever thought you should just spend the rest of your career working on this intervention and 5% of the economics, profession should just work on this with possible rates of return so high for the world's biggest problem, which is poverty, right? Why don't we do much, much more of working on this problem, on this study?

One should certainly continue to do more, working on this study and working on the questions you were asking about the scale-up and working on how various modalities of it. Already, the study you mentioned in science was already a sign that there is at least some interest in the economics profession to focus on this question because it was the second paper on this. The first paper was the evaluation of the mothership program in Bangladesh. And people didn't, you know, say, oh, that's a nice program. Let's go and study something new. Instead, Dean Cannon led a group of people to replicate this same evaluation in seven different countries, which was a very major undertaking involving lots and lots of researchers and NGO.

So the fact that people were willing to do that, to write, you know, a 12-page paper in science at the end of it, suggests that there is really a recognition that it's a very important topic. Now, should everybody do that? Well, I guess there are probably diminishing returns to effort on the particular problems, and there are other interesting problems to look at. So I'm glad that people continue working on this, and I think the work is only going to deepen,

both on understanding the mechanism better, understanding variations around it, and understanding how to make it adopted as policy, because I completely agree with you that of everything that I've done, studied in my life, that this is one with the most important spectacular results. You have some well-known papers with co-authors about microcredit programs in Hyderabad India, and I've long had some questions about how those programs actually work. So, as you know, often the borrowing families are paying annualized rates of 50 to 100 percent, a year. And they keep on borrowing. They're not just borrowing ones to bring the kid to the doctor.

They're in a steady borrowing program. And at the same time, they're not just drained of all their wealth. So does that imply there are rates of return on investment in those communities of 50 to 100 percent a year? And if that's true, why aren't the growth rates higher? Do you get my question? How does the whole thing fit together? Well, it actually does not imply that because the plurality of this household, maybe the majority of these households, does not actually invest in any protective activity with the money. So most of the interest are paid from people's regular job. But don't they just get drained dry if I borrow it every year at 80%? It's not the same households that keep borrowing and borrowing and boring. In fact,

the number of repeat customers is less than you might think. People join microfinance, take a loan, buy something. You know, it can be like a durable good, for example, like a fridge or a cycle, and then use their regular income to repay it. So for some household, that's a very, very expensive way to save in some sense. Because what they're looking for is accumulating enough money to buy this durable good that they want for their household. But it's very difficult to save because there are no saving instruments and there are a lot of temptations, etc. So the microcredit officer serves as a kind of commitment device. When you borrow the money and the incentive of the credit officer is very strongly to make sure that everybody reimburses,

then that will kind of create a way for you to get your assets and then progressively reimburse. So that's kind of a funny way to save, but I think it's a reasonable response in the environment. And then there are some people who are borrowing for business. And we have a recent people where we look at the same setting again, but now eight years after microfinance was introduced, and in fact two years after it's gone, because there was a huge crisis of microfinance. And we look at the group of people who had a business

before microcredit even got in. So there are people who actually borrowed to invest in their business often. And for those guys, we actually see that some of these people actually have very, very high rates. So there are some people with very high rates of returns, as you were saying, you know, 50% or 60%. So first of all, they are not very money,

and they are not necessarily the one that they have access to money. And that's kind of one of the big reason why the growth is lower, is that there is a mismatch between the investment opportunity and who has the money. And that's what microeconomics call misallocation. Your randomized control trials, they're very large, they employ large numbers of people. I even once visited the Hyderabad Project,

was very impressed how much was going on. Do you have a personal philosophy of managing, or leadership. Estre DuFlo, the manager, not the economist. Tell us a little bit about her. So I kind of stumbled onto this because, you know, as most academic, I was not born to be a manager. So I don't have, you know, I didn't bring a pre-made philosophy to this business, but I developed one. And it has several elements to it. But the key is that I'm not a micro-manager. The key is that you want to give people pretty good. clear vision of where we're heading and then give them a lot of ownership for how we're getting

there. And that is true for the whole organization of J-PAL, which is the kind of the sum total, the network of all these researchers were from the very beginning with the first executive director, Rachel Kleenester, it was really her thing to lead and she put her mark to it. and we were kind of behind as kind of enabler. So that's true at that level. That's still true today, I think. And it's true at the smaller level of the project

where everybody has a piece that they own and they run with it. And, you know, they'll make mistakes and then we have to correct the mistakes. But the ownership of the piece of the project means that you get a lot of effort and a lot of creativity of everyone. And then I must say that I'm in a very good business for no credit to me

because the people who get attracted to this work tend to be very committed and kind of passion-driven. So you get very good material to start with, so you just need to give them a little bit of guidance on the move. And which is the input that's the factor of production that prevents you from scaling your work more? Well, I think it is skilled quite a bit. But you're not doing 5x of what you're doing, right?

Something stops you. It could be money, it could be talent. I always try to be behind the money. So I think a lot of problems of some centers, sometimes in academia, you get some money to do something, and then you have to, you know, the idea to match the money. We were always had some idea before and the money comes. So at some level, the money is always the constraining factor. at any point in time.

Now you could say, why don't you get more talent to get more money, but there are some limits to that. Another thing is, I'm not sure, I'm aiming at world conquest in the sense that I'm more interested in, and I think that really much applied to the three of us. We were very much interested in creating an ecosystem where that kind of work becomes easier because policymakers are interested,

Fender are interested, talent is interested, and because there are some things that are eased. Like when we started, even the Hyderabad project we visited, we were kind of still learning as we went and we made mistakes. And we're still making mistakes, but fewer now, because there is an infrastructure and some learnings. And this infrastructure can then be given to other younger people that have more imaginative, great ideas to run with.

So I've kind of always been more interested in. doing that and using my own work as a little bit of a testing ground, you know, trying new things that are quite risky because it doesn't matter to me if that fails. I, you know, I have done you. Do you worry much that the RCT method, it centralizes authority in too few institutions? So you need a certain amount of money. You need some managerial ability. You need connections abroad. It's not like running regressions. Everyone can do it on their PC. Is that in some way going to slow down science? So you get more reliable results. but there's just much less competition of ideas, it seems.

I think it would be the case if we had not be mindful of this problem from the beginning. And it might still be the case to some extent, but I actually think that we've put a lot of effort in avoiding it to be the case. So when you take an organization like J-PAL, just in India, we have 200 staff member, and we have at any given time 1,000 people running survey. They are not running. I say we, but these people are not.

running my project. These people are running the projects of dozens and dozens of researchers. And when I started, I couldn't have started without having the backing of MIT. Because it was such a risky proposition that you needed, you know, to be able to easy, like, risk capital kind of things. But at this point, because of this infrastructure, it's much more normal sense. People can get in with no funding of their own, in part because one of the thing we are doing as a network is raising a lot of money to redistribute to other people widely. J-Apal has 400 researchers that are affiliated to it or invited researchers, many of them, quite, quite junior.

So that sort of makes the, I think it was very important to us, and I think we've been quite successful at it, at making the tool more generally available. It's never going to be like running a regression from your computer, but my philosophy is that if you have the drive and you're willing to put in your own sweat equity, you can do it. And our students and many other students who are not in top institutions are

doing it. In your book, the new book, Good Economics for Hard Times, you talk quite a bit about a revolt against the elites in the United States. But what if I say, well, the elites are underrated, they're pretty good. Who else runs RCTs other than the elites? I mean, what's your response? Do you

side with the revolt or you side with the elites? So first of all, I think that it's, good if it's not just the elite who are on universities. So back to my point of trying to make it a general tool, that's the elite of the kind of academic movement, but you could say, well, they are still academic, so in the broad scheme of things, they are still the elite. So, my problem is not with the elite. My problem is with the attitude of the elite with respect to everyone else. I don't even know what elite means in this context. But if as economists as a profession, spend more time try to understand what are the problems of people who do not have

say the comfort of an academic career behind them, then we can make progress in understanding the issues and therefore potentially in thinking through policies that might help solve these issues. So it would be a bit hypocritical of me to be against the elite. Given that I'm like the elite of the elite in some sense, like from when I was born,

it's a type of problem that you choose to put your attention on that matters. In your new book, you seem at times quite skeptical about how well economists can understand what drives economic growth. But what if I just looked at a few cases? I looked at, say, Singapore, Ireland, Poland, which have done remarkably well in the last few decades. And in each case you had leaders who more or less followed the prescriptions of economics. They had the will or the ability to do so. I watched all of those experiments unfold. I felt they were going to do

pretty well. They did extremely well, actually better than I thought. Don't we, in fact, have a pretty good idea of what does drive growth? It might be different for each country. But you go to a country, you look at it, you have a good sense. Many countries have done it, and it's worked. Why is that wrong? Well, then I could, you know, give you South Korea, and it did pretty well, too, with an entirely different set of policies. Oh, sure, policies can be different, but given a country, it seems the leaders can know,

and if they have the will to do it, it happens. Well, if the policies are very different from one country to the other and our, you know, a complicated function of the context. And, you know, in Ireland, you need very low tax rates, but in South Korea you need industrial policy that a little bit reflects our difficulty as economists to have come up with guidance for the next place. Because, you know, the next, you'll take, I don't know, Ethiopia

and they want to grow. The question becomes, do we have anything in the experience of the past country that will, help us for sure predict the set of steps that Ethiopia needs to take that is going to lead them to grow. My firm belief is that we don't, but if you do, then you have a side gig into helping Ethiopia, and that would be great. But Ethiopia has grown about 10% for 10 years running. They invest about 38% of their GDP.

It may collapse for political reasons, but if they stay on the track they're on, isn't that further evidence that they figured out what they need to do to grow? they had the will to implement it. So far it's working, politics allowing. That's why I picked Ethiopia, because in a sense they have. So again, they have their own path. But the thing is the own path becomes so particular. I'm not saying that good policymaking is not feasible

because we have lots of example of good policymaking and lots of example of bad policymaking, actually. But the good policymaking is so varied that at a scientific level it becomes very quickly good things are good. because the path of Ethiopia, even how the steps that they had to take to kind of carve out a place in international trade, for example, is very different from what a country like China had to do just by virtue of China existing, etc, etc. So I'm certainly not saying that good policymaking is not feasible. I'm just saying that we haven't found, it seems to me, empirically. We haven't found like a series of prescription that we could give to countries saying if you do this thing is going to work out.

And similarly now, growth is slowing down in India. I don't think, at least I wouldn't know what to tell them what they're supposed to do now. I don't think they also, I don't think themselves know. So that's kind of what has turned out to be difficult empirically. This is not me, actually. I'm not a macroeconomy, so I would not have the arrogance to say that we haven't figured it out. But that seems to be what the macroeconomists have, the conclusion they've come to is that they haven't gotten like a set of recommendations, even context-dependent recommendation that they can kind of run with.

As you well know, there's a number of papers that suggest human capital is a factor of overriding importance. for economic growth. I think Manke-Wall and Romer attribute 80% of growth to human capital. What's your view of those theories? As a gross accounting matter, which is what fraction, those differences, what's the correlation between

how much of the growth is explained by differences in human capital across country? It does seem to be that human capital play a role, a big role, even though the Monke-Roman wild figures gone down since then, with the work of Casalee, for example. But it is important.

Some of it is correlation rather than causal effects, that countries that have been good at increasing education have been good at doing other things. Also, countries that have grown fast, also generate an incentive to invest in education. That's all people by Bills and Claynow that kind of nicely makes this point. But the bottom line is that I'm totally really to believe

that human capital broadly defined education in particular plays a big role in growth. And to tell you the truth, even if it didn't, then it's not a big bet to invest in education anyway, because worse come to worse, people would be educated,

which seems to be a good means to an end. It could end in itself. It's not just a means to an end. But then the question becomes, so I will kind of totally go with this repression of human capital is super important. In fact, it is what,

I think, was the original impulse of Michael Kramer when he worked on the, first RCT is he was coming from growth. And he thought, wow, human capital plays a big role in growth. Now, what's human capital? Once you said education is important, you have to start unpack this question. Is it years of education? Well, not really. Clearly, if the kids learn nothing, that's not so useful. So it has to be learning, then you can start asking yourself questions or whether it's like cognitive skills or non-cognitive skills or a mix of the two. Say, you know,

like Heckman is telling us that non-cognitive skills is such a very important part of human capital. And then you want to ask yourself the question, well, how do cognitive skills get produced? How non-cognitive skills get produced? And that's kind of what really, nearly lends you to, you know, much more specific policy advice and hence potentially things that you can start running RCT on. To return to what I think was your master's thesis, how well did the USSR's first five-year plan go? Well, this is actually, this was my master thesis in history,

and I was interested in the time in propaganda. Not so much the first five-year plan per se, but how over this period the talk and the use in propaganda of the big construction sites evolved. So early in, you know, this is a very, also the periods where Stalin consolidated power. At the beginning, there was a lot of ways that the Soviet Union's could have gone. It could have gone a more market-friendly way, which is sort of what Lenin was hoping at some point.

It was going a completely Ethiopian, everybody lived together kind of crazy way. And then there was a Stalin thing, which finally the form that they kind of adopted, which was sort of boring, inefficient realism. And all of this played out in how they represented their construction sites, like the big dam on the Neap. So this is how both economics and the narrative about economics were used to consolidate power and to consolidated grip on society. And you didn't like economics at first I read in one interview.

Why not? What happened? What soured you on it? So I was, you know, exposed to the typical Econ 101 course, the French version of it, with the indifference curve and all that jazz. And I thought it had no relevance that it was so far removed from any real person's life that it could not possibly be useful. I also was skeptical that it was extremely ideological.

that, you know, if you want to show that minimum wage is bad, then it's very easy to write a supply demand curve and the horizontal line. And, you know, law and behold, minimum wage is bad and redistribution perverts incentives. And I thought the conclusions were a little bit too directly coming from the assumptions that were put in. So I had only done economics initially because I wanted to do economic history.

And then I thought, okay, I'm done with this whole economics business. At the same time, I was a little bit dissatisfied with history for different reasons, in particular because I thought it's not very immediately useful. And so that's why I decided to go to Russia under the pretext of writing my master thesis, but really to get some exposure to the world. And this is when I saw economists in action because I was the research assistant of the research assistant of Jeff Sachs, whom I never met in this occasion, but it was kind of hustling for them. And then I thought, you know, I didn't necessarily agree with everything they were doing,

but I thought that they had the luxury to think about things and then to be heard by policymakers when they had something to say. And I said, wow, this is like the best job in the world. And I still think of it. On the Internet, there's a photo of a teenage Esther Duflo. At least it looks like you protesting against fascism in Russia. On top of a tank, is it? That was a bus.

A bus. And it was me. It was me. So that was in 1991. So this is not when I lived one year there. I lived one year in 93, 94. But this was in 91. I had gone to Russia about every year since I was 18 to Blan Russian.

And I happened to be there the summer where there was this puttch against Gorbachev. That's the year my wife left as a refugee. And that summer, so we actually watch TV, and I do remember this, like those gay cats, CEP, they were called, you know, like fascist communists, old half-de-half-dead, making the coupons. We were, like, a bit shocked. And with my friend, we decided that we would go out in town to see, you know, what's happening. And we went. and we went towards the White House and we couldn't see very well

because there were a lot of people. So we saw this trolley and I said, let's go up. We are going to have a good view of what's going on. And we went to the top of the trolley and it was, you know, amazing because there was an immediate fraternization of the troops and the people. In retrospect, it was, you know, not a very reasonable thing to do. But at the time it sounded like completely,

completely happy moment. There was a truck that was delivering bread and so it was the end of communism. And someone gave me that fascism near Pride Ute's a placard and asked me to hold it. I was like, sure, I'm going to hold it. So I'm holding my placard. We stayed there for a long time when things were happening. And next time I saw in the evening, my parents called me that, what are you doing? Because it turns out that that image was on all the TV in the world. And that's how I very briefly became the kind of the face of this revolution. So that photo was then in a book. The guy never knew who I was.

And recently, he kind of put two and two together. Other than missing your family, what was the hardest thing about living in Russia for a year? Oh, Russia was an extremely, extremely hard place to live in at that time. It was extremely violent. just the day-to-day. And it was the end of communism, but it was, mafia was out there replacing it.

And people were really, some people were really extremely poor. They were given these vouchers, but they quickly exchanged them. You saw this like woman queuing near the subway with like one fish to sell. And the whole thing was so hard. Like everything was hard.

So it was a difficult environment. I assume it still is, but I haven't really gone back since then. Do you have a favorite Russian novel? So my favorite Russian-Ratant that very originally is Dostoevsky and, you know, crime and punishment, probably among the... Why is the French education system so good, or would you challenge the premise? The French education system is very good at producing

a very small elite of very educated people and at reproducing it. But productivity at the median is quite high in France, right? At the median of the productivity of the median worker. Yes. So it's not just training in elite. Yes, although I wonder whether if we look in a generation or the current kids who are in school, we will find the same thing. Because I'll tell you exactly why.

The current PISA and Teams results. So France exactly at the median in terms of the scores. But with a lot of heterogeneity, with excellent results. at the top and really bad results at the bottom. And the second thing that this test scores also show, I think it's the teams, the mass scores, is the strongest correlation of the OECD country between your socio-economic class and your scores. So this is the place where being in a bottom quintile of social-economic class income,

parental income, is the most predictive of being in the bottom quintile of the mass performance. So I do think we historically have an excellent system. I do think it has roots in 19th century France and the Republic of the teachers and both inclusive and demanding system at once. And I think to some extent I'm the product of that. But I also think that we've a little bit left it crumble. So I do hope that we kind of can recover it. Does child rearing in France strike you as more sensible than child rearing in the United States?

Oh, very much so. Why? So, very much so. You know that book bringing up baby? Yes. So I think she picked up on something which is reing so true to me, which maybe is a more general point about the U.S. versus France. In France, people are reasonably content to just go with the flow

and do, you know, what everybody does. So every kid eats the same thing at 4.30 and, you know, have dinner at the same time and kind of has gone to. the same experiences, learn the same songs, and everybody thinks they are totally free, but in fact they're all on this kind of pretty sensible railroad. And also, they don't agonize about it. In the U.S., child living is, you know, one more occasion to make a statement about your identity. So, you know, you're the kind of mother that carries the baby, or you're the kind of mother that put the baby in a stroller, and somehow that's sort of, you know,

It almost can predict what you're going to think about Donald Trump. And that's crazy. So people are so, like, you know, concerned about what they do. Not only they feel that they have to invest a ton of in their children, but also, and they feel inadequate if they are not able to, but also that exactly what they do kind of creates them as people. So in France, that's kind of not there. And I think that that makes everybody so much more bleed back.

children and adult. Why are the biggest and best French companies all so old? I think they all predate 1980 or so. So that's a little bit above my pay grade. Not that your other questions were not above my pay grade. We're pay grade elevators at conversations with Tyler. Yes, no, I appreciate that. But that might be above my pay grade, even with your elevator.

What you can seem to say about that, and I'm just going to parotet, someone like Augusta Landier, is the idea that in the U.S. Failing is quite all right. Like bankruptcy is not really a problem. Bankruptcy laws are reasonably easy to navigate and there is not much stigma associated with failing. And so people are, so there is more churn in the system and that produces a bunch of horrible companies,

but those dies, we don't see them. And that produces some good ones. And the French system is less encouraging of failing. and that is less conducive to lots of, you know, thousand flowers blooming, and hence there is no new things. But I'm repeating something which is not deeply original and has some ring of truth, but honestly, I'm not going to claim expertise there. What is important to you from French cinema?

Oh, so many things. That's not above my figure. Like, there's so much inside my play grade. I grew up watching movies. The French system is such that in the first two years of undergraduate, you work like a mad person, and then you can pretty much take vacations for the rest of your life. So I decided against the rest of my life thing

after going to Russia and all that. But in between, I had this one year where I used to go to the cinema about three or four times a week. So I had a chance to get groomed in the American classic, French classic. And what do you recommend to us? So the Nouvelle Vag is still not surpassed in a way. And so in particular, Goder, you watch Pranon-Carmen,

and nobody has made a movie like that. For me, is Coderre and Brescent. Yeah, so I would also put Brescent in there. It's just unbelievable cinema. On the wall of your home in Boston, according to one newspaper, is a slogan from the 1968 Paris riots. and it reads, quote, Nobody ever fell in love with the growth rate.

It's not on the wall of my house in Boston, but it's in a book of quotes that were on the wall of Paris. It's a little red book that was in my parents' book self, which I read as a kid, and I kept in my mind that I knew we had that and was looking for, it could come handy at some point. And it has a lot of, it had a lot of these quotes from 1968, some of them are more well-known than other, like Sulepave la Plage is one of the most well-known

under the pavement. You have the sea. And this one, which I found when we were working on the book, and I wanted to, it was kind of the epigraph of one of the first draft of the chapter on growth. Then somehow I think didn't make it in the final cut. And you think we should fall in love with growth rates? No, I don't think one to do in love.

Why not? The power of compound returns is remarkable, right? I think one should have healthy respect for gross rates and treat them as useful companions and people that you have to make work for you. So I think we should think of growth rate as, you know, chief of staff, not as things we should fall in love with. And I think one issue that countries have had when they've fallen in love with growth rate per se as opposed to why is it you want growth in the first place is that

Going back to the early conversation, it's pretty hard to manipulate growth rate for politicians, especially fluctuation growth rates. And therefore, if things are not going your way and you try more and more crazy things to try to make a gross comeback because that's what you've fallen in love with, then you can put yourself in pretty bad corners. One example is Japan, for example. I think they did fall in love with a growth rate. Instead of kind of trying to think, well, you know, maybe there is a reason why the growth rate have fallen down.

We should be kind of comfortable with that and do the best with what we have. But could Japan have done better? So it grew very rapidly. It caught up basically to France, then stopped at a certain frontier short of the United States. It's managed its decline, really quite well. In per capita terms, its growth rate is okay, not spectacular. Social order is at a premium. What have they done wrong?

Well, they've both themselves a pretty big debt level, which could become a debt crisis in the making, which was kind of entirely unnecessary, because when growth fell down in Japan, in retrospect, of course, you know, you always have 20-20 hindsight, but when growth fell down in Japan, there was a reason for that,

which is the population was aging. The working population as part, as a share of the overall population, was therefore becoming smaller. So it is not surprising that there would be a slowdown in the growth of GDP per capita. And for a while it was compensated by the fact that there was a lot of TFP growth, but that wasn't necessarily going to come forever because we don't really know where TFP is coming from. So at this point, they could have said, well, you know, this is, this is it.

Let's do exactly what you said they should do. We should manage the expectations for the downfall. We're already quite rich. and we have good standard of livings, which we could make, in a sense, even better by addressing some of the issues that still remain in the Japanese society. And they did some of that,

but on top of that, they also said, let's try and make growth come back. And there was this, like, sort of Keynesian spending spree that I don't think have any impact on growth, but puts them in a not particularly desirable microeconomic situation at the moment. Why do you think in the United States geographic mobility has fallen so much. You discuss that at length in the new book.

I think there are a number of reasons, some that are strictly economic, like in financial, and some that are a little bit broader. So on the financial side, real estate is a big part of it, and that has been documented by other people than us. But you can move to the south, right? There's freedom to build in the south.

Plenty of people move to Texas. You won't move to the Bay Area, but it's a big country. Exactly. So that explains why people aren't moving, where a lot of the jobs are if you were. But you're right. People could decide to move, you know, 200 kilometers away, not to a city,

but to another place that happens not to be shocked by a shock. Now, there is the issue that in places where you would expect most people to move from are places which had been hit by economic shock, which is often clustered in nature, because industry is clustered. So then when a region is hit by a shock that hit not just one company when everybody else is doing fine, but kind of all the companies because everybody was doing furniture or clothing or everyone was doing something that is being replaced by robots or something like that.

You have a kind of equilibrium fact that then the places that are affected by the shock get hurt. Then the places that are not directly affected by the shock get hurt too because the guys who were working, you know, they are less likely to buy guys and girls, actually who are working, are less likely to buy McDonald's and therefore the McDonald's, which all the McDonald's, which then leads to a decline in the real estate prices, and people find themselves underwater on their market.

And I think that prevents mobility because at least they have a house to live in if they don't go, but if they sell the house, they have nothing to get themselves another place. So that's kind of a purely economic factor. And on top of that, I think childcare is, kind of an issue because a lot of people have childcare provided by their extended family and you cannot move the entire family, again, maybe due to this real estate things,

and then the childcare options are pretty bad in this country in general, especially for small kids. Once they start going to school, it's a bit better. And then those are some of the economic reasons. Then I also think they are one social reasons, which is people like to be part of a social network, they think it's profoundly human that we are not meant to be lonely. We are meant to live with our friends and derive some amount of meaning from our place in the social network and moving makes it difficult, especially if you're going to move to something that's completely

unknown. You don't exactly know what you're moving to and why. And then finally, is, and that's one thing that I think we think we should start put in a little more in our economic model, is the fact that it seems when you, in surveys, people keep declaring wanting to derive meaning from their job. But they don't always do, and they're more likely to be deriving meaning from their job if they've held this job for a long time. and if they've grown in expertise and in ranks in doing this particular job. So here the geographic mobility is coupled with, or the lack of geographic mobility is coupled with the lack of sectoral mobility, where people aren't just not particularly excited or not excited at all

to leave their job making furniture to take another job 200 kilometers away, being a security guard in a furniture company. Why is any of that so different from the 1980s? When mobility was quite high, even for people without children, mobility now is much lower than it was in the 80s. What's the difference? It's about half now what it was in 1948. And the decline started in the 90s. Yes.

So it's very high in the 80s, and then something happens. And then something happens. And the 90s are good years, right? You would think mobility would be rising in the 90s. Now there's the Internet. You find jobs through the Internet. It's counterintuitive that mobility has fallen so much. Not only that, but it's also the years where you start having a lot of geographically concentrated shocks

because that's the 90s and 2000 is when a trade with China picks up. So it's where entire town would seem that they should go and pick up. So precisely at the moment where the factors you point out would have made geographic mobility easier and there was also more of a need for people to move. This is when we see people move less. So we don't have the full answer to these questions, but I think it's a little bit related to this meaningful jobs question, which is this is also the time where the movement, the geographic movement, would be not associated with finding a job in an other furniture factory 200 kilometers away, but would be finding a job in a completely different sector where you would be starting from scratch and you're taking a job that you have no, you say, think is demeaning. In your recent New York Times op-ed, you seem to argue that incentives are in general,

not that powerful and motivating people economically. And that surprised me, because if I think of most J-PAL papers, incentives are pretty powerful. So your own paper on Indonesian roads, you put in much better roads, many more parents send their kids to school, right? It's a big response. The recent paper on drunk driving in India with Abhijit, police set up new roadblocks, people respond to that incentive, they take other routes. So there are all these papers you've done, your lab is done, showing incentives are powerful.

Why in the op-ed say incentives don't matter so much? What the op-ed says is that financial incentives are overrated. Well, but getting educated or not being pulled over for a drunk-driving traffic ticket, they're closely related to financial incentives. The traffic ticket, I think, is much more than the financial incentive. If you get stopped by a traffic officer, you lose your car right this instant. So I think the inconvenience is much, much bigger. So the point is not that we are trying to make is not that people are not sensitive to incentive

because you can always construct incentive. If you construct broadly enough, then the incentive broadly enough, then it's almost always true. The point is also not that people are not responsive to financial incentive whatsoever. The point is that the points to financial incentives is less than what is less than what, Typically, we assume, it's both in terms of, you know, people seem to be pretty inelastic to taxes, both at all levels of income from the studies we have. People seem to be pretty inelastic to receiving money for sure. That doesn't get them, that doesn't lead them to kind of go on vacation.

But that's just an income effect, right? It's not a price. So that's an income effect. So, but that's still, you know, you would think the income effect also created this incentive to work. At least that's in our model. That's why we're a bit worry of welfare. But you take. the negative income tax experiment, in fact, probably the first R.C.D. in the social science,

you know, as early as the 70s, they actually, what they were doing was kind of a Milton Friedman idea to kind of simplify welfare. But what they did in this experiment is to give people a certain level of income. But it was such that it was taxed away at a pretty cheap rate. So about 50% the people were facing about a 50% marginal tax on their on their income, and even there, the labor supply response were so low. But take that French work many fewer hours a week than Americans. Isn't that mainly a tax effect, a price effect? I don't think so, no.

No, what would be? Well, to start with, there is a regulation that's... But there are all these part-time jobs. In the 1970s, French and other Europeans worked more than Americans. Tax rates in Europe were lower. The 80s, expenditures, and tax rates go up. I mean, it's always difficult to compare to countries, but my bet based on kind of extrapolating from the micro-study is that that's not a financial,

that's not a financial effect, because I think it comes much more from the regulation, how much can you work anyways, and from the availability of jobs, the availability of part-time job, there's actually much less, partly also due to regulations, and less to individual effort response because they're thinking that they're going to be taxed away. that seems to me counterfactual. In the new book, why not have more on social conservatism? So take something like single-parenthood.

It seems to be a big problem. There are many new studies showing it's maybe a bigger problem than we had thought. It's a cause of poverty, persistent poverty. It's kind of a right-wing issue for whatever reasons.

Why not have more right-wing issues in your book? We kind of do have these issues as outcomes. I don't know why it's a right-wing issue to worry about single parenthood because, as you were saying, all of the data

I suggest that it's not a very good thing to grow up as a kid of a single mom in their teens. And it's not a good thing for the single mom in question either. So it seems to me that it's not a right-wing, left-wing issue. In fact, the person I know who is the most left-wing probably is my mom. And that's one of her who, like, key battle him to try and reduce teenage pregnancy issue in El Salvador. And your father was a mathematician, right? Yeah. And did you learn math from him?

I learned it at a very fundamental level. It is kind of a very fundamental mathematician. So it left me, I think, with some good instinct. Going back to the issue, so I don't think single motherhood is a left-wing or right-wing issues. What would make it a social conservatism issue is to approach it from, you know, moral feeling kind of a way. And what makes it a progressive issue is to approach it at the outcome of, you know, conditions in life that are potentially changeable or maybe it's the same thing

and we do talk about it a bit in the book in particular for example one of the consequences of the fact that people are not mobile that industries are clustered so that when there is a shock everybody kind of suffers together is that in those town that are hit the most you do see a kind of an erosion of these

people are less like of this like social norms people are less likely to get to get married they are more likely to have children out of wedlock, etc. So you do see this as one of the possible consequence of people's unhappiness. What do you learn from rock climbing or how does it inspire you? Many things you can learn from rock climbing. One is that it's a bit like empirical economics. You kind of look at the wall and you have a decent idea of what might work.

So you think of it as a theory or a theory. and intuition. But then when you try it out, sometimes it works. Sometimes it doesn't. So that's kind of the data going in the way. It's also something you do socially. You do need another person to catch you if you fall and you need to pay attention to the other person.

And a lot of economics is very social in this way. And it's not competitive or at least not the way I do it. So it's kind of making slow and steady progress. towards some goal. Do you love South Indian classical music? I like it. I love it would be a stronger statement than I should because I'm not a connoisseur. But my husband is really into it.

So in fact, South Indian and North Indian both. We listen to it at home and we go to concerts whenever we are in India. Chennai is one place where we do a lot of work. And J-Palaz, it's headquarters. And it has some of the best South Indian music. So I am like kind of an unenlightened amateur. I've been to the December festival there. It was fantastic.

It took my daughter. What in classical music interests you most? In Western Classical. Yes. So this I truly love. Indian Classical I also love, but with no expertise whatsoever. Western classical I grew up listening to forever. What interests me the most, I don't even know if interest in the world,

because it's kind of very visceral. And what is it? What do you put on? What's your Desert Island disc? Oh, that's Back. So I listen to Back almost every morning when I'm working, and in particular to Back Cantatas. So that's kind of my morning music. And then in the afternoon, I kind of move on to more like Frontier stuff like Schumann or something like that. It's only after dinner that it moves to Bob Dylan. So definitely it would be back and it would probably be. one of the passions, or if I could have two, I would take two, the two passions, St. John and St. Matthew's passion.

What advice do you give to your talented undergraduates that differs from the advice your colleagues would give them? I give them almost all of them the advice to take some time off, and to, in particular, if they have any interest in development, which is generally the reason why they come to see me in the first place. But even if they don't really, to spend a year or two in a developing country,

working on a project, not necessarily in RCT, any project, like spending time in the field. This is what Michael Kramer did before he went back to graduate school and I think that was determined to him. This to some extent is what I did

with my little Russia experience and this was clearly very central to me. It's only through this exposure that you can learn how wrong most of your intuitions are and preconceptions are. I can tell it to them until they are blue in the face to not let themselves be guided by what seems obvious to them, but until they've confronted what they think is obvious

to something entirely different, then it doesn't come, it's not clear. Whether or not this is different from what my colleagues would say, I don't know. Maybe some of my colleague would say that you're better of staying home and cranking some data and getting this type of skills. Obviously, it hasn't stopped you any, but do you worry that development economics in some ways puts women at a disadvantage because some emerging economies are especially dangerous for women? India in particular, that may be the case.

I think development economics is the most gender-balanced subfield of all of economics, in fact, if anything, They are more women and more powerful women in development than men. So whatever it is, it does not stop them. And there are many, many women working on India. So, of course, you don't do silly things. And the advantage of working and of having this infrastructure that I was talking about before is that it makes it possible for people to always be in groups and to kind of work in a context where they are safe.

and at the same time they can get the experience of living in these environments. And I think that makes people often very aware that gender rights, for example, is something to study very deeply. So for example, one of my graduate students, Maddie McElway, worked in rural UP, and one of the region, one of the part of India, which was some of the most extreme gender inequity. And she conducted a project like a master with a group of largely female research assistant and got everybody to kind of go along with her. Last question. If you could institute a reform to increase opportunity for women in economics, what would you do?

So I think there are two things that one could do. I don't know if there are reforms per se, but one is to change a little bit the climate in the economy. in the economics profession. It's not particularly anti-woman per se. Some people argue it is people are, for example, more likely to interrupt women and men, etc. But even if they weren't, they are just in general likely to interrupt each other.

We are not a very touchy philiculture in economics. It doesn't bother me. It turns out, so that's not something that has stopped me in any way, but it bothers many people, and it tends to bother women and I think minority more. So changing the culture, of course, is not a reform per se. But there are small things you can do that can help. One thing we've done at MIT, very simple, is to institute the rule that someone who gives a seminar

gets the first 15 minutes uninterrupted. And that, for our seminars, the development seminars, I think it's actually improved the experience for everyone, the speaker and the audience. So that's one. That's not huge, but think of this as one, you know, I'm not the magic bullet type of person and I don't think there is one there, one of the silver pellets you could do there. The other is not about something we could do outside of the economic profession, which is to change a little bit the image that economics has to the outside world.

I think for a lot of high school students, college students, they are a bit like me when I was trying, you know, considering economics is like, oh, number one, it's like talk about interest rate and central banks and it's kind of boring. And number two, it goes at it with like incredibly crude tools. And in fact, both of these statements are, I think, wrong about the state of our discipline. In fact, we study any number of issues, including those, but also, you know, ultra-extreme poverty, discrimination, inequality. And we study them with lots of very sophisticated tools and relevant empirical tools, etc. And making, I think if people were more aware at an early age before they choose a field,

there would be more women to start with choosing to study economics and then hopefully more would continue, which I think is something we really need, not just women, but also minority because economics is a social science. And as a social science, we do need diversity and experience. and point of views, et cetera, because people with different background, including gender and life experiences, will be interested in different questions

and also will bring a slightly different perspective to those questions. So, you know, it would be a bit more, it would make the field more vibrant. Esther Duflo, thank you very much. Congratulations again on the Nobel Prize, of course. And the new book with Abidjit Banerji is Good Economics for Hard Times. Thank you.

Thank you so much. Thanks for listening to Conversations with Tyler. And don't forget to visit Conversationswithtyler.com slash donate to please support the show before the year's end.