THE GIST of Editorial for UPSC Exams : 15 october 2019 (Economics Nobel rewards research that tackled poverty (The Hindu))

Economics Nobel rewards research that tackled poverty (The Hindu)

Mains Paper 3: Economy
Prelims level: J-PAL
Mains level: Poverty alleviation in global context

Context

• By conferring the Nobel prize for economics on poverty researchers Abhijit Banerjee, Esther Duflo and Michael Kremer, the Nobel committee has once again sent out a message that economics must address pressing concerns of the people rather than merely confine itself to arcane pursuits, such as the intricacies of derivatives trading.

Key observation made by the committee

• In its citation, the Nobel committee has said that the winners of 2019 have helped break down the complex dimensions of poverty into simpler micro-level problems, such as education for girls and sanitation, for which specific policy solutions can be more easily tailored for a particular region.
• The Academy observes that as a result of micro-level studies, it was possible in India to tailor remedial education programmes that benefited five million children.

About J-PAL

• Banerjee, who has created the Abdul Jameel Poverty Action Lab (J-PAL) in MIT, has worked with Duflo and Kremer in creating a methodology of ‘randomised control trials’ (RCTs) to assess the performance and potential of public policy.
• J-PAL has carried out over 500 RCTs in 10 countries, including India, which includes an audit of pollution control in Gujarat, MGNREGA schemes and numerous welfare schemes in Tamil Nadu.
• The studies in Tamil Nadu in partnership with the State government pertain to disease control, improving breastfeeding outcomes and dealing with anaemia in children.
• Banerjee has notably been in the news for actively backing the Congress’ Nyuntam Aay Yojana, which promised to provide an estimated ₹6,000 a month to 25 crore people estimated to be in need of income support.
• He has worked with French economist Thomas Piketty in pointing out the extent of wealth inequality in India, and in the context of NYAY observing that there was immense scope to raise money through taxes to fund such schemes.
• By focussing on poverty and the nature of policy instruments required to address it, Banerjee et al share the concerns of earlier Nobel prize winners who have focussed on poverty, such as Amartya Sen (1998) and Angus Deaton (2015).

About RCTs

• RCTs are based on the experimental methods of science, peers including Deaton have questioned this approach.
• Whether a problem of economics can be delinked from politics, history and culture is a moot point. Sen adopts an institutional approach, as does Deaton.
• Besides, it is possible to devise effective welfare schemes, such as Kudumbashree in Kerala, without resorting to RCT, if the political institutions are responsive to the needs of the people.
• Governance outcomes in India are superior where democratic and social institutions are more evolved.
• RCTs are an effective evaluation tool and can work as a micro-guide in guiding the direction and finances of welfare policies.

Conclusion

• Governments of all political hues should take an objective view on the work of this year’s Nobel prize winners to optimise gains for their citizens.

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Prelims Questions:

Q.1) With reference to the Fiscal Policy which of the following curves have a direct relationship with the tax rate and tax collection?
(1) Lorenz Curve
(2) J Curve
(3) Laffer Curve
(4) Phillips Curve

Select the correct answer using the code given below:
(a) 3 only
(b) 2 and 3 only
(c) 2, 3 and 4 only
(d) 1, 2, 3 and 4

Answer: A
Mains Questions:
Q.1) What do you mean by the RCTs? How complex dimensions of poverty break down into simpler micro-level problems?