Esther Duflo: "For many drivers, a gas tax feels like an unfair burden"
Aug 2022
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The world as a laboratory
Economist Esther Duflo explains why the fight against climate change is so difficult. And why people often don't do what models predict.
This interview by Mario Stäuble was originally published in German by Swiss daily «Tagesanzeiger», 28 June 2022. Translated and edited for layout purposes by the UBS Center.
The weather app shows 32 degrees as Esther Duflo welcomes us for an interview at a hotel near the University of Zurich. The French-American dual citizen is jet-lagged, having arrived in the city the day before to give lectures and a talk. Her partner Abhijit Banerjee and she - both development economists, both Nobel Prize winners - are giving parallel interviews in separate meeting rooms. The heat pushes through the open window; in the building next door, someone is practicing the piano.
Esther Duflo, we are experiencing a hot June in Zurich. Were you able to sleep last night?
(grins) Yes, we had air conditioning.
The onset the onset of a heat wave causes feverish excitement in Switzerland. But after a few days, what we want most are cooled trains and air-conditioned offices. We invest a lot of money and energy for this. Our need for comfort is one of the reasons why climate targets are so difficult to achieve. As a development economist, how do you approach such a problem?
That is the big question in the fight against climate change; the global South bears most of the costs. But the causes lie in the behavior of the North. If it gets too hot here, we just turn on the air conditioning. That's how we exacerbate the problem, but not for us.
What solution do you see?
Americans consume much more energy per capita than Europeans. But I don't think that makes them any happier than Europeans are. However, if you try to change their lifestyle, they find it terrible at first. We are creatures of habit. However, research shows that it is not that difficult for people to change their habits. For that to happen, policymakers have to act.
How?
It often seems difficult at the beginning. We humans suffer from "projection bias": We project our current behavior and values onto the future and believe that nothing will change. What has always been will always be. But once a change happens, a new habit can form very quickly - and we forget how things used to be.
Can you give examples?
Smoking. In Europe, we smoked everywhere, and in my home city of Paris, it was simply part of life, both indoors and outdoors, especially in cafés. But then the legal smoking ban came. Interestingly, there was a transitional period of one year, so the implementation was still quite far away for people when the decision was made. That reduced the resistance. We no longer smoke in cafés today, and it's the most natural thing in the world. And I don't think people are any less happy because of that. And another Parisian example: Nobody rode bicycles in the city. Then there were two shocks: first strikes in the transportation system, then Covid-19, and then the city government invested in bike lanes. Paris has since become a cycling city.
Changing habits through politics is therefore a starting point. Many experts see the solution primarily in new technologies, since they are less restrictive.
Technology is often disappointing in practice. But I need to elaborate a bit on this.
Please.
The cost of renewable energy has fallen sharply in recent years, and it will probably continue to do so. The hope is that prices will fall to the point where the "old" energies are automatically replaced. But I don't think there's a clear answer yet as to whether that's really going to happen. The matter is economically complicated: If part of humanity abandons fossil fuels, the falling demand for oil and gas could cause their prices to sink even more - and thus increase demand in another part of the world.
You say: It is not yet clear to what extent renewables solve the problem.
Yes. And the second aspect of "techno-optimism" is that supposedly simple solutions turn out to be complicated. Another example from France: During the presidential election, President Macron had to defend himself against criticism that he was doing nothing about climate change. He used to say then that his government was giving money to homeowners so that they could insulate their houses. That sounds good in theory. But data from Mexico or the United States show: Insulation programs achieve little.
Why?
The basic problem is that we underestimate the human element. Even if your house is newly insulated, you still have to close the windows. And some people simply turn up the thermostat when they realize the heating bill has gone down. Human behavior can counteract the gains from technological progress.
So, in your eyes, we shouldn't rely too heavily on technology?
No, that's not what I'm saying. I'm saying that the one brilliant idea that completely solves a problem often doesn't exist.
But?
You don't know in advance what will work. It's not that people are unwilling to change. Sometimes they do, sometimes they don't. You have to try different things.
For example, a tax on the climate gas CO₂?
I am not an opponent of a CO₂ tax. I'm just less enthusiastic about it than other economists. Many of us believe that such a tax will solve all our problems. However, most people who are not economists don't like the CO₂ tax at all.
Neither do we Swiss. In June 2021, we narrowly rejected a CO₂ law that included such a tax.
Yes, I followed the vote. The car is extremely important for many people. Taxing gasoline feels like an unfair burden to some. The yellow vest movement in France began precisely because of a planned CO₂ tax on gasoline. A slogan was emblazoned on a vest at the time: "If you're looking for money to fight climate change, find it in tax havens, not in the pockets of the proletariat."
What does the economist say?
An economist would say: That's not the point. The tax is just an incentive to change behavior. The money gained is distributed back to the population. The problem is that people don't really believe that the money will flow back. Trust in government is tarnished or destroyed in many places around the world.
Do you have an example of this as well?
In India, farmers receive electricity free of charge. They use this to pump water from the ground. In some states, such as Punjab, the water table is now so low that many farmers can no longer get water. That's a problem today, not a problem in the distant future. One politician tried to charge for electricity. He was voted out of office. Later he managed to get elected again, tried again, this time with a very sophisticated system to help the farmers - and was voted out again. They simply did not believe that he would solve the problem.
Can this trust be rebuilt?
Politicians must first deliver. In Indonesia, the government managed to remove subsidies for diesel. Instead, people received cash payments. Because similar payments had been made on a smaller scale in the past, people believed that the money would actually flow.
If you are not a friend of a CO₂ tax: Which tools do you recommend?
I don't think there is a magic bullet. It won't work without regulation. And then there needs to be investment in infrastructure. But above all, I believe that climate change can only be solved if you link it to social issues. You need the political support of the poor. You can't have a conflict between the end-of-the-month problems and the end-of-the-world problems. The end-of-the-month problems will always win.
You argue with very specific examples. You were awarded the Nobel Prize in 2019 for popularizing a new method in economics: Go out and experiment.
Economics was long considered a science that worked primarily with theoretical models. I benefited from people who had come before me whose motto was, "Let the data speak." If you take that phrase seriously ... (The piano playing in the neighboring building gets louder. Esther Duflo smiles as she recognizes the melody) ... Sorry, I'm laughing because there is a child practicing the "Jungle Book", of all things. My daughter participated in a musical the day before yesterday, the children also performed "Jungle Book". (keeps silent and listens) She or he still needs to practice ... but good: By focusing on data instead of models, our perspective changed completely. We started to do randomized trials.
By this you mean trials with two randomly matched groups: One receives a measure, the other does not. And then a comparison is made. The method comes from medical research. When did you realize that it would yield interesting findings?
My colleague Michael Kremer conducted an early study to examine whether distributing free textbooks in developing countries improves student achievement.
I would say “yes”.
No! The books were useless! Michael could not believe it. He repeated his work again and again to find out if he had done something wrong. But the result was always the same - the books didn't make the teaching any better. I witnessed this as a student at the time. It was so eye-opening! I think I became a "randomista" - that's what we're sometimes called today - because I was fascinated by the completely surprising results.
One of your specialties is pointing out where economic models collide with reality.
Yes. For example, models expect people to be mobile. They look for a better job with higher pay in a new city, for example. In Switzerland, too, most students learn these simple models, and now they influence political decision-makers. The only problem is that sometimes they are not correct.
For example?
When the U.S. opened up to trade with China, no one thought about what would happen to a cabinet maker in North Carolina who would lose his job because of cheap imported Chinese furniture.
According to the theory, these people would move.
Exactly, the cabinet maker would go to New York and maybe sell Chinese furniture there. But in reality, you don't want to just move. You want to stay at home, where family and friends live. Maybe you've been making furniture for twenty years and you're pretty good at it now. If you now had to give up your job, for example, to become a security guard at a furniture store, it could damage your self-esteem. So, it's also about dignity.
In your current book, you make a very personal story on the subject of dignity versus financial interests public: that of your grandfather.
He emigrated from France to Argentina to run a farm with friends. But very quickly there were quarrels and the dream of the farm was shattered. But my grandfather could not bring himself to return to France as a failed man, where he would have quickly found a job as a veterinarian. Thus, this French middle-class family with four children lived in the middle of nowhere in Argentina. He even refused to teach the children Spanish. My mother completed her schooling by correspondence, receiving the material by mail from France. She hated it. It took several years before my grandfather finally found a job in Argentina.
Did you make a conscious decision to link economic research so strongly with fates and stories?
I want to be understood. And I want to go one step further: In the fall, an illustrator and I will publish five children's books in France on the subject of poverty. We won't be presenting real people but inventing them. For once.
Economist Esther Duflo explains why the fight against climate change is so difficult. And why people often don't do what models predict.
This interview by Mario Stäuble was originally published in German by Swiss daily «Tagesanzeiger», 28 June 2022. Translated and edited for layout purposes by the UBS Center.
The weather app shows 32 degrees as Esther Duflo welcomes us for an interview at a hotel near the University of Zurich. The French-American dual citizen is jet-lagged, having arrived in the city the day before to give lectures and a talk. Her partner Abhijit Banerjee and she - both development economists, both Nobel Prize winners - are giving parallel interviews in separate meeting rooms. The heat pushes through the open window; in the building next door, someone is practicing the piano.
Esther Duflo; Nobel Laureate, Abdul Latif Jameel Professor of Poverty Alleviation and Development Economics, MIT
Development economist Esther Duflo is the second woman to win the Nobel Prize in Economics - in 2019, along with her future husband Abhijit Banerjee and US economist Michael Kremer. Duflo and Banerjee had founded a laboratory for research on poverty, the Poverty Action Lab, at the Massachusetts Institute of Technology in 2003. The two development economists, who conduct research together and have two children, specialize in field studies. They want to find out which methods for fighting poverty actually work. The interview with Esther Duflo took place at an event organized by the UBS Center for Economics in Society at the University of Zurich. (ms)
Good economics for hard times
Contact
Esther Duflo is the Abdul Latif Jameel Professor of Poverty Alleviation and Development Economics in the Department of Economics at the Massachusetts Institute of Technology and a co-founder and co-director of the Abdul Latif Jameel Poverty Action Lab (J-PAL). In her research, she seeks to understand the eco- nomic lives of the poor, with the aim to help design and evaluate social policies. She has worked on health, education, financial inclusion, environment, and governance. Duflo has received numerous academic honors and prizes including 2019 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (with co-Laureates Abhijit Banerjee and Michael Kremer).
Esther Duflo is the Abdul Latif Jameel Professor of Poverty Alleviation and Development Economics in the Department of Economics at the Massachusetts Institute of Technology and a co-founder and co-director of the Abdul Latif Jameel Poverty Action Lab (J-PAL). In her research, she seeks to understand the eco- nomic lives of the poor, with the aim to help design and evaluate social policies. She has worked on health, education, financial inclusion, environment, and governance. Duflo has received numerous academic honors and prizes including 2019 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (with co-Laureates Abhijit Banerjee and Michael Kremer).