Abhijit Banerjee Quotes

poverty is not just a lack of money; it is not having the capability to realize one’s full potential as a human being.

We must arm ourselves with patience and wisdom and listen to the poor what they want. This is the best way to avoid the trap of ignorance, ideology and inertia on our side.

the poor are no less rational than anyone else—quite the contrary. Precisely because they have so little, we often find them putting much careful thought into their choices:They have to be sophisticated economists just to survive.

The point is simple: talking about the problems of the world without talking about some accessible solutions is the way to paralysis rather than progress.

If the rules make such a difference, then it becomes very important who gets to make them.

What is dangerous is not making mistakes, but to be so enamored of one’s point of view that one does not let facts get in the way. To make progress, we have to constantly go back to the facts, acknowledge our errors, and move

But then it is easy, too easy, to sermonize about the dangers of paternalism and the need to take responsibility for our own lives, from the comfort of our couch in our safe and sanitary home. Aren't we, those who live in the rich world, the constant beneficiaries of a paternalism now so thoroughly embedded into the system that we hardly notice it?

Awareness of our problems thus does not necessarily mean that they get solved. It may just mean that we are able to perfectly anticipate where we will fail.

there is a strong association between poverty and the level of cortisol produced by the body, an indicator of stress. And

Economics is too important to be left to economists.

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.

ideology, ignorance, and inertia—the three Is—on the part of the expert, the aid worker, or the local policy maker, often explain why policies fail and why aid does not have the effect it should.

For each successful entrepreneur in the Silicon Valley or elsewhere, many have had to fail.

A combination of unrealistic goals, unnecessarily pessimistic expectations, and the wrong incentives for teachers contributes to ensure that education systems in developing countries fail their two main tasks: giving everyone a sound basic set of skills, and identifying talent.

So at the end of the day, although we will try to stitch together the best evidence for these theories, the result will be tentative. We have already seen that growth is hard to measure. It is even harder to know what drives it, and therefore to make policy to make it happen. Given that, we will argue, it may be time to abandon our profession’s obsession with growth.

There is always some cheap pleasant thing to tempt you.

Talking about the problems of the world without talking about some accessible solutions is the way to paralysis rather than progress.

And, perhaps most urgently, how can society help all those people the markets have left behind?

no one leaves home unless home is the mouth of a shark you only run for the border when you see the whole city running as well your neighbors running faster than you breath bloody in their throats the boy you went to school with who kissed you dizzy behind the old tin factory is holding a gun bigger than his body you only leave home when home won’t let you stay.7

Mi a közös az aszály sújtotta vidéken élő indiai gazda, a chicagói South Side fiatalja és az ötvenes éveiben járó munkanélkülivé vált, fehér férfi között? Az, hogy bár vannak problémáik, nem ők jelentik a problémát. Megérdemlik, hogy annak lássuk őket, akik; és ne az őket sújtó nehézségek határozzák meg a róluk kialakított képet.

It is not easy to escape from poverty, but a sense of possibility and a little bit of well-targeted help (a piece of information, a little nudge) can sometimes have surprisingly large effects. On the other hand, misplaced expectations, the lack of faith where it is needed, and seemingly minor hurdles can be devastating. A push on the right lever can make a huge difference, but it is often difficult to know where that lever is. Above all, it is clear that no single lever will solve every problem.

The government exists in part to solve problems no other institution can realistically tackle. To demonstrate waste in government, one needs to show there is an alternative way of organizing the same activity that works better.

The curriculum and organization of schools often date back to a colonial past, when schools were meant to train a local elite to be the effective allies of the colonial state, and the goal was to maximize the distance between them and the rest of the populace.

research in education shows that children quickly internalize their place in the pecking order, and teachers reinforce it. Teachers told that some children are smarter than others (even though they were simply chosen randomly) treat them differently, so that these children in fact do better.

Most people believed, correctly, that most normal North Africans tended to be relatively poor and therefore unlikely to be able to afford a new car, and on the basis of that statistical association their presumption was that the individual North African driver of a nice car was a criminal. Now they assume he is an Uber driver, which is clear progress.

Only a social policy founded on respect for the dignity of the individual can help make the average citizen more open to ideas of toleration.

In the slums of Delhi, a study found that only 34 percent of the “doctors” had a formal medical degree.

This is why political institutions matter—they exist to prevent leaders from organizing the economy for their private benefit.

A közgazdaságtan túlságosan fontos ahhoz, hogy csak a közgazdászokra bízzuk.

there are no iron laws of economics keeping us from building a more humane world,

economic phenomena to show that we think about the present very differently from the way we think about the future (a notion referred to as “time inconsistency”).37 In

the present, we are impulsive, governed in large part by emotions and immediate desire:

More generally, time inconsistency is a strong argument for making it as easy as possible for people to do the “right” thing, while, perhaps, leaving them the freedom to opt

The call to action is not just for academic economists—it is for all of us who want a better, saner, more humane world. Economics is too important to be left to economists.

The answers to these problems take more than a tweet. So there is an urge to just avoid them. And partly as a result, nations are doing very little to solve the most pressing challenges of our time; they continue to feed the anger and the distrust that polarize us, which makes us even more incapable of talking, thinking together, doing something about them. It often feels like a vicious cycle.

Capital-scarce economies grow faster because new investment is highly productive. Rich economies, which are, in general, capital abundant, tend to grow more slowly because new investment is not as productive.

In one large US university, where roommates were assigned at random, a study found that white students who happened to end up with African American roommates were significantly more likely to endorse affirmative action, and that white students assigned roommates from any minority group were more likely to continue to interact socially with members of other ethnic groups after their first year, when they had full freedom in choosing whom to associate with.

It is both patronizing and wrong-headed, in our view, to assume people must have screwed up just because we might have behaved differently. And yet society routinely overrules people’s choices, especially if they are poor, supposedly for their own good,

The bottom line is that, much as in rich countries, we have no accepted recipe for how to make growth happen in poor countries. Even the experts seem to have accepted this. In 2006, the World Bank asked the Nobel laureate Michael Spence to lead the Commission on Growth and Development (informally known as the Growth Commission). Spence initially refused, but convinced by the enthusiasm of his would-be fellow panelists, a highly distinguished group that included Robert Solow, he finally agreed. But their report ultimately recognized that there are no general principles, and no two growth episodes seem alike. Bill Easterly, not very charitably perhaps, but quite accurately, described their conclusion: “After two years of work by the commission of 21 world leaders and experts, an 11-member working group, 300 academic experts, 12 workshops, 13 consultations, and a budget of $4m, the experts’ answer to the question of how to attain high growth was roughly: we do not know, but trust experts to figure it out.

For that, we need to understand what undermines trust in economists. A part of the answer is that there is plenty of bad economics around. Those who represent the “economists” in the public discourse are not usually the same people who are part of the IGM Booth panel.

the parts of the brain corresponding to the limbic system (thought to respond only to more visceral, immediate rewards) were activated only when the decision involved comparing a reward today with one in the future. In contrast, the lateral prefrontal cortex (a more “calculating” part of the brain) responded with a similar intensity to all decisions, regardless of the timing of the options. Brains that work like this would produce a lot of failed good intentions. And indeed, we do see a lot of those, from New Year’s resolutions to gym memberships that lie unused.

Many people would also agree with Amartya Sen, the economist-philosopher and Nobel Prize Laureate, that poverty leads to an intolerable waste of talent. As he puts it, poverty is not just a lack of money; it is not having the capability to realize one’s full potential as a human being.

The benefits of good nutrition may be particularly strong for two sets of people who do not decide what they eat: unborn babies and young children. In fact, there may well be an S-shaped relationship between their parent’s income and the eventual income of these children, caused by childhood nutrition. That is because a child who got the proper nutrients in utero or during early childhood will earn more money every year of his or her life: This adds up to large benefits over a lifetime. For example, the study of the long-term effect of deworming children in Kenya, mentioned above, concluded that being dewormed for two years instead of one (and hence being better nourished for two years instead of one) would lead to a lifetime income gain of $3,269 USD PPP. Small differences in investments in childhood nutrition (in Kenya, deworming costs $1.36 USD PPP per year; in India, a packet of iodized salt sells for $0.62 USD PPP; in Indonesia, fortified fish sauce costs $7 USD PPP per year) make a huge difference later on.

Additionally, there is good evidence that people particularly hate mistakes of their own making. The world is fraught with uncertainties, many of which people have no control over. These vagaries make them unhappy, but perhaps not as unhappy as making an active choice that ends up, purely as a result of bad luck, making them worse off than if they had done nothing.

After every patient left, the doctor would come outside and make a show of washing his needle with water from the drum. This was his way of signaling that he was being careful. We do not know whether he actually infected anyone with his syringe, but doctors in Udaipur talk about a particular doctor who infected an entire village with Hepatitis B by reusing the same unsterilized needle.

The poor, on the other hand, may well be more skeptical about supposed opportunities and the possibility of any radical change in their lives. They often behave as if they think that any change that is significant enough to be worth sacrificing for will simply take too long. This could explain why they focus on the here and now, on living their lives as pleasantly as possible, celebrating when occasion demands it.

After the first lot of policyholders universally claimed to have lost their cattle, they decided that in order to claim that an animal had died, the owner would need to show the ear of the dead cow. The result was a robust market in cows’ ears: Any cow that died, insured or not, would have its ear cut off and the ear would then be sold to those who had insured a cow. That way they could claim the insurance and keep their cow. In

A better conversation must start by acknowledging the deep human desire for dignity and human contact, and to treat it not as a distraction, but as a better way to understand each other, and to set ourselves free from what appear to be intractable oppositions. Restoring human dignity to its central place, we argue in this book, sets off a profound rethinking of economic priorities and the ways in which societies care for their members, particularly when they are in need.

To make matters worse, learning about health care is inherently difficult not only for the poor, but for everyone.33 If patients are somehow convinced that they need shots to get better, there is little chance that they could ever learn they are wrong. Because most diseases that prompt visits to the doctor are self-limiting (i.e., they will disappear no matter what), there is a good chance that patients will feel better after a single shot of antibiotics. This naturally encourages spurious causal associations: Even if the antibiotics did nothing to cure the ailment, it is normal to attribute any improvement to them. By contrast, it is not natural to attribute causal force to inaction: If a person with the flu goes to the doctor, and the doctor does nothing, and the patient then feels better, the patient will correctly infer that it was not the doctor who was responsible for the cure. And rather than thanking the doctor for his forbearance, the patient will be tempted to think that it was lucky that everything worked out this time but that a different doctor should be seen for future problems.This reaction creates a natural tendency to overmedicate in a private, unregulated market. This is compounded by the fact that, in many cases, the prescriber and the provider are the same person, either because people turn to their pharmacists for medical advice, or because private doctors also stock and sell medicine. It

The only recourse we have against bad ideas is to be vigilant, resist the seduction of the “obvious,” be skeptical of promised miracles, question the evidence, be patient with complexity and honest about what we know and what we can know. Without that vigilance, conversations about multifaceted problems turn into slogans and caricatures and policy analysis gets replaced by quack remedies. The call to action is not just for academic economists—it is for all of us who want a better, saner, more humane world. Economics is too important to be left to economists.

A friend of ours from the world of high finance always says that the poor are like hedge-fund managers—they live with huge amounts of risk. The only difference is in their levels of income. In fact, he grossly understates the case: No hedge-fund manager is liable for 100 percent of his losses, unlike almost every small business owner and small farmer. Moreover, the poor often have to raise all of the capital for their businesses, either out of the accumulated “wealth” of their families or by borrowing from somewhere, a circumstance most hedge-fund managers never have to face.

The increasing sophistication of robots and the progress of artificial intelligence has generated considerable anxiety about what would happen to our societies if only a few people had interesting jobs and everyone else had either no work or had a horrible job, and inequality ballooned as a result. Especially if this happened because of forces largely out of their control. Tech moguls are getting desperate to find ideas to solve the problems their technologies might cause. But we don’t need to contemplate the future in order to get a sense of what happens when economic growth leaves behind the majority of a country’s citizens. This has already happened—in the United States since 1980.

Women retained more information from the training, and those who were trained by them and listened to them did in fact learn more. But most farmers did not listen. They assumed women were less able, and therefore paid less attention to them. Along the same lines, when women in Bangladesh were trained to become line managers, they were just as good as men based on an objective assessment of their leadership and technical qualities, but they were perceived as less good by their line workers. And, presumably as a result, the performance of their lines also suffered, perversely confirming the prejudice that they were worse managers.39 What started as an unjustified preference against women resulted in women actually doing worse through no fault of their own, and this reinforced their inferior status.

Good economic institutions will encourage citizens to invest, accumulate, and develop new technologies, as a result of which society will prosper. Bad economic institutions will have the opposite effects. One problem is that rulers, who have the power to shape economic institutions, do not necessarily find it in their interest to allow their citizens to thrive and prosper. They may personally be better off with an economy that imposes lots of restrictions on who can do what (that they selectively relax to their advantage), and weakening competition may actually help them stay in power. This is why political institutions matter - they exist to prevent leaders from organizing the economy for their private benefit. When they work well, political institutions put enough constraints on rulers to ensure that they cannot deviate too far from the public interest.

Generally, it is clear that things that make life less boring are a priority for the poor. This may be a television, or a little bit of something special to eat—or just a cup of sugary tea. Even Pak Solhin had a television, although it was not working when we visited him. Festivals may be seen in this light as well. Where televisions or radios are not available, it is easy to see why the poor often seek out the distraction of a special family celebration of some kind, a religious observance, or a daughter’s wedding. In our eighteen-country data set, it is clear that the poor spend more on festivals when they are less likely to have a radio or a television. In Udaipur, India, where almost no one has a television, the extremely poor spend 14 percent of their budget on festivals (which includes both lay and religious occasions). By contrast, in Nicaragua, where 58 percent of rural poor households have a radio and 11 percent own a television, very few households report spending anything on festivals.33

Statistical discrimination explains why the police in the United States justify stopping black drivers more often. And how the Hindu majoritarian government of the state of Uttar Pradesh recently explained why so many of the people “accidentally” killed by the state police (in what are called “encounter deaths”) are Muslim. There are more blacks and Muslims among criminals. In other words, what looks like naked racism does not have to be that; it can be the result of targeting some characteristic (drug dealing, criminality) that happens to be correlated with race or religion. So statistical discrimination, rather than old-fashioned prejudice—what economists call taste-based discrimination—may be the cause. The end result is the same if you are black or Muslim, though. A recent study on the impact of “ban the box” (BTB) policies on the rate of unemployment of young black men provides a compelling demonstration of statistical discrimination. BTB policies restrict employers from using application forms where there is a box that needs to be checked if you have a criminal conviction. Twenty-three states have adopted these policies in the hope of raising employment among young black men, who are much more likely to have a conviction than others and whose unemployment rate is double the national average.31 To test the effect of these policies, two researchers sent fifteen thousand fictitious online job applications to employers in New Jersey and New York City, just before and right after the states of New York and New Jersey implemented the BTB policy.32 They manipulated the perception of race by using typically white or typically African American first names on the résumés. Whenever a job posting required indicating whether or not the applicant had a prior felony conviction, they also randomized whether he or she had one. They found, as many others before them, clear discrimination against blacks in general: white “applicants” received about 23 percent more callbacks than black applicants with the same résumé. Unsurprisingly, among employers who asked about criminal convictions before the ban, there was a very large effect of having a felony conviction: applicants without a felony conviction were 62 percent more likely to be called back than those with a conviction but an otherwise identical résumé, an effect similar for whites and blacks. The most surprising finding, however, was that the BTB policy substantially increased racial disparities in callbacks. White applicants to BTB-affected employers received 7 percent more callbacks than similar black applicants before BTB. After BTB, this gap grew to 43 percent. The reason was that without the actual information about convictions, the employers assumed all black applicants were more likely to have a conviction. In other words, the BTB policy led employers to rely on race to predict criminality, which is of course statistical discrimination.

people’s sense of self-worth is related to their position in the groups they see themselves as part of—their neighborhoods, their peers, their country. If this were true, inequality would of course directly affect well-being.

Interestingly, the urge to show off is less strong when people feel good about themselves. The experimenters found that simply writing a short essay describing a moment when the person did something she or he was proud of reduced the demand for platinum cards. This creates a vicious cycle, with people who feel economically vulnerable being particularly eager to demonstrate their worth through useless purchases they can ill-afford, and an industry all too ready to provide these services for a handsome fee.

Indeed, on Facebook, 99.91 percent of the two billion people on it belong to the “giant component,” meaning that almost everyone is everyone else’s friend of a friend of a friend.67 There are only about 4.7 “degrees of separation” (the number of “nodes” you have to cross) between any two people in the giant component. This implies that in principle we could easily be exposed to pretty much everyone’s views as they travel through the social network.

the insatiable greed of the capitalist class in the pursuit of more and more capital will drive the return on capital into the ground (in Marxist parlance this is called the “falling rate of profit”) and precipitate the crises that eventually end capitalism.31

What matters is not just how many smart people you work with, but also how many smart people you are competing with, or just happen to be around in the Valley as a whole. Silicon Valley, in Romer’s theory, is what it is because it brings together the best minds of the world in an environment where they can cross-pollinate each other.

there is no compelling evidence to date of real economic responses to tax rates at the top of the income distribution.”57 By now, there seems to be a consensus among a large majority of economists that low taxes on high earners are not guaranteed to, on their own, bring about economic growth.

we skip over news about the treatment of migrant children in detention centers to avoid thinking about the fact we have supported a government that treats children in this way.

Recognizing these patterns has a number of important implications. First, obviously, accusing people of racism or calling them the “deplorables,” as Hillary Clinton famously did, is a terrible idea. It assaults people’s moral sense of themselves and puts their backs up. They immediately stop listening. Conversely, one can see why calling egregious racists “fine people,” and emphasizing there are bad people “on both sides,” as President Trump did, is clearly an effective strategy (however morally reprehensible) to gain popularity, since it makes those who make these remarks feel better about themselves.

Psychologists these days encourage parents to tell their children not that they should be nice, but that they are nice, and all they have to do is to behave in conformity with their natural kindness. That applies to all of us.

For a white person who has to be on disability because it is the only way to get welfare, it is not sufficient anymore to say a black or Latino single mother must be a welfare queen; that was a Reagan-era insult. Now that white people have to be on welfare as well, the insult has to be ratcheted up; she must be a gang member.

Self-discrimination undermines confidence and test performance. A history of being underestimated, patronized, ignored, or despised by teachers and supervisors because you happen to be from a particular group will make it harder to achieve.

Chile)

We don’t understand very well what can deliver permanently faster growth. It just happens (or not).

After two years of work by the commission of 21 world leaders and experts, an 11-member working group, 300 academic experts, 12 workshops, 13 consultations, and a budget of $4m, the experts’ answer to the question of how to attain high growth was roughly: we do not know, but trust experts to figure it out.”83

There is no evidence low-skilled migration to rich countries drives wage and employment down for the natives;

There will be a poverty trap whenever the scope for growing income or wealth at a very fast rate is limited for those who have too little to invest but expands dramatically for those who can invest a bit more. On the other hand, if the potential for fast growth is high among the poor, and then tapers off as one gets richer, there is no poverty trap.

The focus on income alone is not just a convenient shortcut. It is a distorting lens that often has led the smartest economists down the wrong path, policy makers to the wrong decisions, and all too many of us to the wrong obsessions. It is what persuades so many of us that the whole world is waiting at the door to take our well-paying jobs. It is what has led to a single-minded focus on restoring the Western nations to some glorious past of fast economic growth. It is what makes us simultaneously deeply suspicious of those who don’t have money and terrified to find ourselves in their shoes. It is also what makes the trade-off between the growth of the economy and the survival of the planet seem so stark.

As we lose the ability to listen to each other, democracy becomes less meaningful and closer to a census of the various tribes, who each vote based more on tribal loyalties than on a judicious balancing of priorities.

This process by which only the worst cars or the worst employees end up on the market is called adverse selection.

A recent study from the University of Chicago’s Booth School of Business (not a place known for its socialist tendencies) uses a clever trick to answer whether tax cuts that benefit the rich have more or less of a growth effect than tax cuts that benefit the rest of the economy. Different states have very different income distributions, and therefore tax cuts for the rich should have very different consequences in different states. Connecticut, for example, has many more rich people than Maine. Using the thirty-one tax reforms since the war, the study shows that tax cuts benefitting the top 10 percent produce no significant growth in employment and income, whereas tax cuts for the bottom 90 percent do.56

we know from a number of individual developing countries. In the last three decades, many low- to middle-income countries have opened up to trade. Strikingly, what happened to their income distribution in the following years has almost always gone in the opposite direction of what the basic Stolper-Samuelson logic would suggest. The wages of the low-skilled workers, who are abundant in these countries (and should therefore have been helped), fell behind relative to those of their higher-skilled or better-educated counterparts.

Between 1985 and 2000, Mexico, Colombia, Brazil, India, Argentina, and Chile all opened up to trade by unilaterally cutting their tariffs across the board. Over the same time period, inequality increased in all those countries, and the timing of these increases seems to connect them to the trade liberalization episodes. For example, between 1985 and 1987, Mexico massively reduced both the coverage of its import quota regime and the average duty on imports. Between 1987 and 1990, blue-collar workers lost 15 percent of their wages, while their white-collar counterparts gained in the same proportion. Other measures of inequality followed suit.

The same pattern, liberalization followed by an increase in the earnings of skilled workers relative to the unskilled, as well as other measures of inequality, was found in Colombia, Brazil, Argentina, and India. Finally, inequality exploded in China as it gradually opened up starting in the 1980s and eventually joined the World Trade Organization (WTO) in 2001. According to the World Inequality Database team, in 1978 the bottom 50 percent and the top 10 percent of the population both took home the same share of Chinese income (27 percent).

First, that capitalists invest in the pursuit of high returns; when and where returns go down, capital accumulation tends to go down as well. Second, that as capitalists as a class accumulate more and more capital, the productivity of capital becomes lower because there are not enough workers to work with it. In economics this is known as diminishing returns. It has a long pedigree. French economist Anne Robert Jacques Turgot, who was briefly France’s finance minister and one of the many experts who tried unsuccessfully to head off France’s headlong descent into the economic chaos that eventually precipitated the French Revolution, wrote about it in 1767.30 Karl Marx took it as a premise. As he saw it, this was why capitalism was doomed: the insatiable greed of the capitalist class in the pursuit of more and more capital will drive the return on capital into the ground (in Marxist parlance this is called the “falling rate of profit”) and precipitate the crises that eventually end capitalism.31

What matters is not just how many smart people you work with, but also how many smart people you are competing with, or just happen to be around in the Valley as a whole. Silicon Valley, in Romer’s theory, is what it is because it brings together the best minds of the world in an environment where they can cross-pollinate each other. The increasing returns here are at the level of the industry, the city, or even the area. Even if every firm faces diminishing returns, doubling the number of high-skilled people in the Valley makes all of them more productive.

Interestingly, even the IMF, so long the bastion of growth-first orthodoxy, now recognizes that sacrificing the poor to promote growth was bad policy. It now requires its country teams to include inequality in factors to take into consideration when providing policy guidance to countries and outlining conditions under which they can receive IMF assistance.123

It may not be an accident that many of the winners of globalization were ex-communist countries that had invested heavily in the human capital of their populations in the communist years (China, Vietnam) or countries threatened with communism that had pursued similar policies for that reason (Taiwan, South Korea). The best bet, therefore, for a country like India is to attempt to do things that can make the quality of life better for its citizens with the resources it already has: improving education, health, and the functioning of the courts and the banks, and building better infrastructure (better roads and more livable cities, for example).

The Stern report concludes that, assuming a rate of technological progress in the “green sector” based on extrapolating from recent history, it would cost about 1 percent of world GDP annually to stabilize emissions at the level necessary to stave off global warming. But that seems a modest cost to avoid endangering the future of the world as we know it.

Even if people remain employed, this leads to an increase in inequality, with higher wages at the top and everyone else pushed to jobs requiring no specific skills; jobs where wages and working conditions can be really bad. This accentuates a trend that has taken place since the 1980s. Workers without a college education have increasingly been pushed out of mid-skill jobs, such as clerical and administrative roles, into low-skill tasks, such as cleaning and security.

Even if the total number of jobs does not fall, the current wave of automation tends to displace jobs that require some skills (bookkeepers and accountants) and increase the demand, either for very skilled workers (software programmers for the machines) or for totally unskilled workers (dog walkers, for example), which are both much more difficult to replace with a machine. As software engineers become richer, they have more money to hire dog walkers, who have become relatively cheaper over time, since there is little alternative employment for those with no college education. Even if people remain employed, this leads to an increase in inequality, with higher wages at the top and everyone else pushed to jobs requiring no specific skills; jobs where wages and working conditions can be really bad. This accentuates a trend that has taken place since the 1980s. Workers without a college education have increasingly been pushed out of mid-skill jobs, such as clerical and administrative roles, into low-skill tasks, such as cleaning and security.

The increasing sophistication of robots and the progress of artificial intelligence has generated considerable anxiety about what would happen to our societies if only a few people had interesting jobs and everyone else had either no work or had a horrible job, and inequality ballooned as a result. Especially if this happened because of forces largely out of their control. Tech moguls are getting desperate to find ideas to solve the problems their technologies might cause.

The labor share (the share of revenues used to pay wages) has continuously declined since the 1980s. In manufacturing, almost 50 percent of sales were used to pay workers in 1982; it had fallen to about 10 percent in 2012.34 The fact

high end” of finance—the investment banks, junk bonds, hedge funds, mortgage-backed securities, private equity, quants, etc.—and this is where many of the astronomical earnings have shown up in recent years.

premium unrelated to its usefulness, like the fund managers earning a fat fee for doing nothing, or the many talented MIT engineers and scientists hired to write software that allows stock trading at millisecond frequencies, then talented people are lost to firms that might do something more socially useful. Faster trading may be profitable because it allows the trader to react more quickly to new information, but given that the reaction time is already seconds or less, it seems implausible that it improves the allocation of resources in the economy in any meaningful way.

The result is that CEOs are often rewarded for pure luck; when the stock market valuation of the firm goes up, even if it is due to pure chance (e.g., world crude oil prices went up, the exchange rate moved in the firm’s favor), their salary increases. The one exception, which in some ways proves the rule, is that CEOs of companies where there is a single large shareholder who sits on the board (and is vigilant because it is his own money on the line) get paid significantly less for luck than for genuinely productive management.56

Democracies raise money through taxation. The overall tax revenues (taking together all levels of government) in the United States in 2017 was just 27 percent of GDP. This is seven points lower than the average in the OECD. The United States was tied with South Korea, and only four other countries in the OECD have lower tax revenues (Mexico, Ireland, Turkey, and Chile).

at the country level, there is a strong correlation between the size in the cuts in top tax rates between 1970 and today, and the increase in inequality. Germany, Sweden, Spain, Denmark, and Switzerland, where top marginal tax rates stayed high, did not experience sharp increases in top income shares. In contrast, the United States, Ireland, Canada, the UK, Norway, and Portugal cut the top tax rates significantly and experienced large increases in top income shares.

All in all, therefore, it seems to us that high marginal income tax rates, applied only to very high incomes, are a perfectly sensible way to limit the explosion of top income inequality. They would not be extortionary, since very few people will end up paying them; top managers will simply not get these kinds of income anymore. And from all we see, they won’t discourage anybody to work as hard as they can. To the extent they affect people’s choice of career, it will likely be in a positive direction. This is not to deny the importance of structural economic changes, which have made it increasingly difficult for those with low education to succeed, generating an increase in inequality even within the remaining 99 percent.

Therefore, the monopolist will tend to focus more on cost-cutting innovations, which will increase its profit margins. In contrast, a competitive firm might go for a moonshot to try to take over the market.

Henry Ford was the son of an Irish immigrant. Steve Jobs’s biological father was from Syria, Sergey Brin was born in Russia. Jeff Bezos takes his name from his stepfather, the Cuban immigrant Mike Bezos.

That unregulated automation could be bad for workers is also the instinct of most Americans on the right and the left. One place, remarkably, where Republican and Democrat poll respondents agree is in their opposition to letting companies decide how much to automate. Eighty-five percent of Americans would support limiting automation to “dangerous and dirty jobs,” with no difference between Democrats and Republicans. Even when the question is posed in a more politically pointed way, asking whether “there should be limits on the number of jobs businesses can replace with machines, even if they are better and cheaper than humans,” 58 percent of Americans, including half of Republicans, say yes.

For some of these reasons, we suspect the current drive toward replacing human actions with robots cannot be prevented from taking a serious toll on the already dwindling stock of desirable jobs for low-skilled workers, first in the rich countries but very soon everywhere.

In the United States, the top marginal tax rate was above 90 percent from 1951 to 1963. It declined afterward, but remained high. Under Presidents Reagan and George H. W. Bush, top tax rates came down from 70 percent to less than 30 percent. Bill Clinton pushed them back up, but only to 40 percent. Since then they have bounced up and down, as the US presidency passes between Democrats and Republicans, but they have never gone much higher than 40 percent.

Reaganomics, as the dominant economics of this period came to be called, was quite open about the fact that the benefits of growth would come at the cost of some inequality. The idea was that the rich would benefit first but the poor would eventually benefit. This is the famous trickle-down theory, never better described than by Harvard professor John Kenneth Galbraith, who claimed this was what used to be called the “horse and sparrow” theory in the 1890s: “If you feed the horse enough oats, some will pass through to the road for the sparrows.”28 Indeed, the 1980s ushered a dramatic change in the social contract in the US and the UK. Whatever economic growth happened since 1980 has been, for all intents and purposes, siphoned off by the rich. Was Reaganomics or its UK version responsible for it?