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13 November 2019updated 04 Sep 2021 4:38pm

Esther Duflo: “Even politicians now realise how mistaken austerity was”

The Nobel-winning economist on why Brexit happened, Emmanuel Macron’s errors and Donald Trump’s political genius. 

By George Eaton

Economists are traditionally revered for their grand theories, whether of the “invisible hand” of the market, or the interventionist state, or the contradictions of capitalism. The French economist Esther Duflo, who was awarded the Nobel Prize on 14 October, has pioneered an alternative model.

“The core of my approach is to take big questions and break them into smaller pieces that can be answered much more rigorously,” she explained when we met recently in London. The best economics, Duflo says, is “the least strident”, likening her work to plumbing or rock climbing (one of her hobbies).

In partnership with her husband Abhijit Banerjee, with whom she was co-awarded the Nobel along with Harvard’s Michael Kremer, Duflo pursued this approach to economic analysis through meticulous field experiments in the developing world. One such trial in Kenya investigated the effect of charging people for mosquito nets or offering them for free. Contrary to common assumptions about “handouts”, Duflo and Banerjee showed that those who received mosquito nets for free were more likely to purchase them in the future.

Even before she won the Nobel, becoming both the youngest ever recipient of the economics prize, at 46, and only its second female winner, Duflo enjoyed a prodigious ascent. She became a tenured professor at the Massachusetts Institute of Technology, where she still teaches, at just 29, and was awarded a “genius grant” by the MacArthur Foundation in 2009. But Duflo is modest about her achievements. “It was totally unexpected,” she said of the Nobel. “This is a prize that people tend to get later in their career. It was not even crossing my mind.”

Duflo, who was born in Paris in 1972, recalled the question that sparked her humanitarian impulse: “Is it possible to do something that will help the world’s poor?” Her mother, a paediatrician, worked abroad in war-stricken countries and would show her children slides from her aid work upon returning.

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After studying history at the École Normale Supérieure in Paris, Duflo was drawn to economics after she spent a year abroad in Russia in 1993. Here, during the post-communist era of “shock therapy”, she witnessed economists’ ability to transform the world for both good and ill. She is fond of describing her approach as “pragmatic idealism”.

Western economists typically apply lessons from the developed world to poorer countries. But Duflo has reversed this process. In her new book Good Economics for Hard Times, written with Banerjee, she notes that problems such as “ballooning inequality, lack of faith in government, fractured societies”, are “eerily familiar to those used to studying in the developing world”.

One symptom of these maladies is Brexit. But rather than denouncing it as an act of economic self-harm, Duflo takes a more self-critical approach. “As economists, we should take a lot of the blame for not seeing that people’s pain was real,” she said. Instead, economists were guilty of “telling people that ‘you are voting against your economic self-interest’, when they were voting to say that their economic self-interest had been sacrificed”.

Duflo excoriated the Conservative Party’s austerity programme, which she blames for the Leave vote. “I think even politicians now realise how big a mistake austerity was. It basically hit people when they were down… It just seems crazy that you would lower the welfare of people who are already victims of a shock that they didn’t cause or want.”

She was also unequivocal in her defence of the free movement of people: “All the evidence shows that migrants are not competing with native workers for wages. Even when there has been a big influx of migrants they haven’t cut the wages of natives. This is the consensus view based on the empirical evidence.

What policies would she advocate to address the UK’s economic and social woes? “Spend more money on public services that are labour-intensive and will therefore create good jobs for people such as childcare and education.” She also emphasised the importance of high-quality training schemes and praised the Danish model of “flexicurity”, which combines a flexible labour market with a generous social security system.

Emmanuel Macron hailed Duflo’s “magnificent Nobel prize” as “a reminder that French economists are currently among the best in the world”. But Duflo was less complimentary of the French president’s policies. Though she emphasised that she would be “eternally grateful” to him for defeating Marine Le Pen, Duflo criticised Macron for “removing the wealth tax the moment that he was elected and embracing the Blair-Clinton style of saying that the poor must be responsible”.

Duflo, who lives in Boston, Massachusetts, takes a more heterodox view of her adopted homeland’s president. “Donald Trump is a genius politician in his own way – he has made people believe that a war was waged against them and that they were the victims and the soldiers of that war.

“That did two things: one was defining anyone else as the enemy – China, Mexicans, the media – and the other was giving people back their pride because if they are the soldiers they are not losers but heroes.”

Duflo acknowledged that the greatest challenge facing economists – and humanity – is the climate crisis. She was sceptical, if not dismissive, of the possibility of green growth. “We need to be ready for the possibility that investments are less productive than we think. The solution then becomes not just electric cars but not driving a car at all.”

What advice, I asked Duflo in closing, would she give to world’s leaders? Her answer exemplified her hopeful scepticism: “There is no magic bullet, though there are lots of silver pellets.”

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This article appears in the 13 Nov 2019 issue of the New Statesman, How Britain was sold