Summary
Gearing up for a major election year, not only for the US but for dozens of countries around the world, the book explores what economic research tells us about some of the most well-trodden topics in the political sphere - immigration, trade, taxes, welfare, automation, and more. The authors - two economics professors at MIT - do an outstanding job navigating the treacherous waters of such politically divisive topics, looking objectively at the latest economic research, including meta-analyses across hundreds of studies.
The authors primarily lay out the academic research with supporting anecdotes, rather than just making political arguments couched in untested economic theory, making the case for evidence-based policy rather than just unfounded political rhetoric. Perhaps most importantly, they underscore the complexity of economics and policy, and the importance of nuance and humility in any political beliefs. Their quote sums it up well:
“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.”
Takeaways
Free trade has winners and losers: One of the primary points of the book, specifically on immigration, labor, and trade, is the concept of stickiness. While economic theory would typically point to free trade being good policy (notably, it has been shown to grow the overall global economy), it is not universally good, as it can create concentrated and long-lasting pockets of job losses. This is because part of the argument for free trade relies on the premise that individuals can/will freely move to where new job opportunities are. But they don’t. This is where behavioral economics comes in. For example, in towns impacted by job losses due to trade with China, research demonstrates people didn’t just up and move somewhere else for a job. People have families, communities, real estate, etc. that can make it challenging for the lower- or middle-class to uproot for a job, even if there are no regulatory barriers to movement (e.g., between states in the US).
Increased immigration does not impact wages: The book dives into immigration and its impact on wages. While there may be other arguments for/against increased immigration, the book primarily looks only at wages. Contrary to common belief, the body of research continues to show that increased immigration does not impact wages. The reasons are myriad, but the reasons I noted are (as a reminder - the authors back their claims up with lots of academic research):
The hope of more money is not enough to draw immigrants - there is a lot of stickiness in home countries. For example,
The influx of immigrants increases supply of labor but also demand for labor.
Immigrants are often too inexperienced to compare with local workers’ social networks and local knowledge (so they can’t get jobs, even if they offer to work for less) - employers don’t JUST choose the cheapest labor.
Tax cuts for the rich only benefit the rich: My perspective on taxes has changed pretty substantially over the last few years. This book makes the case that tax cuts in the US for the top 10% do not lead to gains in employment, but tax cuts for the bottom 90% do. There is a ton of economic literature cited in the book that demonstrates “no compelling evidence of a real economic response to tax rates at the top of the income distribution.” In other words, increases in tax rates at the top of the income distribution do not harm the economy. Because of all the literature pointing to this, most economists now agree that lower taxes on high earners is not guaranteed to create economic growth. Study after study (including papers from UChicago, Oxford, and the London School of Economics) demonstrate supply-side economics (aka trickle-down, low taxes on the rich) primarily helps the rich and the rich alone. My takeaway: if you want to talk the US’s deficit, you need to talk tax increases on the rich in some form.
Welfare / Universal Basic Income does not make people work less: One of the common refrains against welfare and UBI is that an unconditional payment to individuals would incentivize them to work less. However, a wide number of studies - covering over a billion people over the last decade - have uncovered “no evidence that cash transfers make people work less.” There are still many other questions and potential challenges to UBI (e.g., where does the money come from? See the tax question above 👀). But at the very least, political rhetoric should stop marketing theoretical outcomes that are not borne out by data.
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