Esther Duflo: “Climate change is a problem from hell politically”

The Nobel Prize-winning economist on how equality can save the planet.

Photo by Tori Ferenc

“Exploding inequality, environmental catastrophes and looming global policy disasters” prompted the Nobel Prize-winning economists and married couple Abhijit Banerjee and Esther Duflo to write their 2019 book, Good Economics for Hard Times. Its title is an obvious allusion to Charles Dickens’ Hard Times (1854), a novel that highlighted the social and economic consequences of industrial civilisation. Little did Banerjee and Duflo know when researching and writing their book that the world’s problems were about to get even greater.

“In the book, we poke fun at economists for being bad at making predictions,” Duflo said with a smile when we spoke recently over video call from her home in Boston. “But we didn’t know that we would end up with a title that would be almost prophetic.” Originally from Paris, Duflo, 49, obtained her doctorate from the Massachusetts Institute of Technology in 1999 and has since spent most of her career teaching development economics at the same university.

Although their scholarship focused on the developing world, Duflo and Banerjee decided to “take the plunge” and write Good Economics “to hold on to hope”. As the “dawn-light” of the early years of Barack Obama’s presidency gave way to the “psychedelic madness of Brexit”, the gilets jaunes protests in France and Donald Trump’s border-wall obsession, expounding the world’s problems – as well as offering some solutions for a more equitable society – seemed the right thing to do. Their previous work, Poor Economics: The Surprising Truth About Life on Less Than $1 a Day (2011), was acclaimed by economists and the general public.

The world can only be “put back together”, and societies made more equal and less environmentally destructive, if “we are honest about the diagnosis”, Duflo and Banerjee argue. This means acknowledging unpleasant truths, a task most politicians and mainstream economists could be accused of avoiding as they continue to push market-led growth as the most effective response to the pandemic and the impacts of the war in Ukraine. Duflo gives a withering assessment of the business-as-usual reactions that espouse international trade, low taxes and consumption as ways to beat the economic downturn. She wants a much deeper transformation to build “a more humane world”.

The developed world at first responded more efficiently to the pandemic than Duflo expected, especially with its speedy development of vaccines. That wealthy countries joined forces “to protect each other” was a “positive surprise”, and the decision of the US, the UK and much of Europe to spend significant percentages of GDP on fiscal stimulus measures was “remarkably effective in averting a major social disaster”. The realisation by policymakers that they needed to spend money to save lives and sustain their economies left Duflo feeling initially “quite optimistic”. People would get a “good taste” of what it means to have a well-funded, functioning social protection system, she thought.

Now she is much less optimistic about the world’s ability to solve systemic problems. Her initial confidence seems misplaced, given what transpired both during and immediately after the pandemic: rich countries failed to assist the poorest nations (which were spending only around 2 per cent of their GDP on fiscal stimulus), there was the “fiasco” around vaccine sharing, as well as the rapid “clawback” to tired economic dogmas. All of this makes Duflo “very pessimistic” about climate action, which will require the Western world, historically responsible for the majority of greenhouse gas emissions, to transform its own economy and help lower-income countries transition to net zero. Such international cooperation seems “very hard to envision” at the moment, she said.

Those in power in Brussels, London or Washington are unlikely to feel the most destructive effects of climate change any time soon, while the costs of extreme weather for people living in Pakistan or India are already “insane”, said Duflo. The disconnect between those creating the most pollution and those impacted by it makes climate change “a problem from hell politically”. Most people in the West think climate action will “cost them something without bringing them any benefit”, meaning there is a lack of citizen pressure on politicians to devise policies commensurate with the scale of the problem. At a time of rising energy and food prices, “people are more concerned by the end of the month than by the end of the world”.

Duflo believes that politicians could implement ambitious climate action without provoking public dissent by making it part of a wider programme of wealth redistribution. She argued that in France, Emmanuel Macron’s failure to link these two agendas – he instead chose to lower taxes on the rich, remove a wealth tax, and continue to impose a carbon tax – led to the gilets jaunes protests in 2018. People wrongly saw the fuel tax “as a way to make the poor pay for climate change”. Unless voters on lower salaries trust that their government will somehow “compensate” them, the “massive collective action” required to create a net-zero society is impossible, she warned.

People are right to distrust political promises of a “just transition”, having already seen what happened when manufacturing moved from Europe and the US to China: “Entire sectors were wiped out and nobody was there to help.” Any assistance offered was “minuscule” compared to what people lost – not just financially but also in terms of social contract. The US government’s decision to compensate workers who lost their jobs with a form of disability insurance “added insult to injury”, Duflo said.

“Now we’re telling people we are going to destroy their jobs, but don’t worry, we’ll give you something else. Why would they trust us?” Duflo thinks that concerns about “what climate change means for me” is one reason why Donald Trump received so many votes in 2016 and 2020. “It’s not just about money, it’s about your place in the world, about dignity.”

Despite the gloomy tenor of our conversation, Duflo still believes change is possible. “It is easier to change the political dynamic than you think,” she said. “Movements can appear out of nowhere and convergence that seems impossible suddenly becomes possible.” The rise of Macron and his En Marche party (now renamed Renaissance) to the top of French politics is proof that political movements can unexpectedly and democratically assume power from staid incumbents. Jean-Luc Mélenchon, previously dismissed as a far-left firebrand, has also become a serious political operator with his calls for climate action and wealth redistribution.

As we ended our discussion, Duflo insisted again on the importance of trust to create political and economic transformation that can, she believes, give a more honest answer to the world’s problems. There is work to do, however. The public trusts neither politicians nor economists. A 2017 YouGov poll conducted in the UK put trust in politicians at 5 per cent, with trust in economists only slightly higher at 25 per cent. A 2018 survey in the US revealed similar tendencies.

“Look how you considers of us, and writes of us and talks of us,” worker Stephen Blackpool tells mill owner Josiah Bounderby in Dickens’ Hard Times. For Duflo, as long as people across the world feel like second-class citizens, climate change and other crucial issues will remain unsolvable.