Immigration, economics & poverty

Good Economics for Hard Times: Better Answers to Our Biggest Problems by Dr. Abhijit Banerjee et al. is one of the best books that I have read this year. Chapter 2 to chapter 4 of this book should be compulsory reading in the social science school curriculum. Understanding the connections between poverty, trade and human desires should definitely be useful in life. The book made me aware about my own ignorance of many popular economic narratives that I took for granted. For example: I was surprised to find out that tax cuts don’t promote economic growth and cash incentives generally don’t make people lazy.

I have noted down some of my other takeaways for future reference:

• It’s not possible to accurately and reliably forecast growth (even by economists).
• The economic benefits of immigrant labor is lost if the money is repatriated.
• Wages do not go down when there are more migrants. This happens because the the demand for labor also increases along with the increases in the supply of laborers.
• Even though immigration of skilled individuals is more accepted but it has downsides from an economic perspective.
• The assumption that the playing field is level for all competitiors is valid only when there are no connections. Specific players may dominate once people have made connections.
• Economic incentives on their own are NOT sufficient to make people leave the home. It takes a disaster or war to motivate people to immigrate.
• People generally prefer not to try. This allows them to protect their image as intelligent and hard-working individuals.
• Comparative advantage (the idea that countries should do what they are relatively best at doing) mayn’t be correct as hinted by research from Topalova.
• Stolper-Samuelson thesis of free trade mayn’t be correct because it’s difficult for a new player to enter and the labor force is sticky.
• The gains from trade are much larger for smaller and poorer countries than richer countries.
• People know what they want. The example of a hungry man buying television to get relief from boredom was interesting.
• The emotional value we put on beliefs about ourselves also leads us to distort our beliefs about others; for example, since we want to shield ourselves from our own prejudices, we couch them in the language of objective truth.
• GDP may not be a good measure of value. When a tree gets cut down, GDP counts the labor used and the wood produced, but does not deduct the shade and the beauty that are lost.
• Capital-scarce economies grow faster because new investment is highly productive. It is also not true that poor countries DEFINITELY grow faster than richer ones.
• Governments appear to be incompetent because they do things that the free market will not touch.
• When the benefits of economic growth are largely captured by a small elite, growth can be a recipe for a social disaster.
• Taxes do not seem to discourage people from working.
• There is no evidence that cash transfers make people work less.
• Poor use of land is a major source of misallocation in India, probably responsible for a significant loss of economic growth. If UBI alleviated the need to stick to your land at all costs, it would reduce this misallocation.
• We shouldn’t define people by their problems since it is a consequence of circumstance rather than their being.

The authors generally provide extensive references for each of the claims they make. However, I felt that they allowed their political stance to slightly bias their proposed solutions and some parts of their analysis. This was particularly clear in the last few chapters where they proposed solutions to help address the inequitable distribution of wealth.