Econ Extra Credit with David Brancaccio

How to help the poor amid COVID-19? Give them money, says Nobel laureate Esther Duflo

David Brancaccio and Rose Conlon Apr 9, 2020
Nobel laureate Esther Duflo points to direct cash transfers in coronavirus response. Jonathan Nackstrand/AFP via Getty Images
Econ Extra Credit with David Brancaccio

How to help the poor amid COVID-19? Give them money, says Nobel laureate Esther Duflo

David Brancaccio and Rose Conlon Apr 9, 2020
Nobel laureate Esther Duflo points to direct cash transfers in coronavirus response. Jonathan Nackstrand/AFP via Getty Images

This is part of our “Econ Extra Credit” project, where we read an introductory economics textbook provided by the nonprofit Core Econ together with our listeners.

We all need to understand the economic fundamentals right now, more than ever. Get a refresher with our Econ Extra Credit newsletter.

In the United States and around the world, poverty is exacerbating the spread of COVID-19 and making it more deadly. Officials are pointing to economic inequalities and barriers to health care as leading reasons why the novel coronavirus is disproportionately affecting black and brown Americans. Lockdowns in countries like India and Zimbabwe have forced many to decide between the risk of the virus and the certainty of going hungry if they abide by social distancing orders.

There’s a new estimate that COVID-19, the virus and the response to it, could wipe out half of all jobs in sub-Saharan Africa. Researchers commissioned by the charity Oxfam also warn the pandemic could push half a billion people into poverty in countries that are already low-income.

As the international community scrambles to help low-income countries weather the pandemic, it’s not always clear how aid money will reach the people who need it.

MIT economist Esther Duflo, who won the 2019 Nobel Memorial Prize in Economic Sciences last year along with colleagues Abhijit Banerjee and Michael Kremer, says governments should start with direct cash transfers to individuals.

“There is no trade off in poor countries between helping people sustain themselves financially and getting the health conditions to improve; the two have to go hand in hand. Because if you cannot assure people that they will be able to eat in the future, then it’s going to be impossible for them to stay home,” Duflo told “Marketplace Morning Report” host David Brancaccio.

It doesn’t need to be a lot of money — just enough to get by while you’re staying at home and not working.

It’s especially critical for low-income countries to ensure people can buy basic necessities. If a segment of the population stops buying things like agricultural goods, it could lead to a much larger economic crisis, Duflo warned.

“What starts as a shock could snowball into a complete standstill for the economy, which would make it very difficult to restart once the health condition improves,” she said.

Before the pandemic, Duflo was telling governments — “a little bit too late and maybe not loud enough” — to establish infrastructure that would allow them to efficiently get cash to individuals in an emergency like today’s.

“Unfortunately, not all countries are at the level of readiness that I was hoping for them to get to before the crisis,” she said.

We’re seeing that play out in the U.S., where it’s unclear when many low-income people will receive their coronavirus relief checks.

Ironically, direct cash transfers might not be the best choice for wealthy countries like the U.S. Duflo pointed to the strategy adopted by some European governments, of paying the wages of workers who would’ve lost jobs due to the coronavirus, as better in the long run.

“In the U.S. I don’t know why we didn’t go this way,” she said. “That brings the much more complicated problem of getting the money to people’s bank accounts. And that means that people are now unemployed, which brings all of the insecurity that is going to prevent them from consuming and living again once it becomes possible from the pandemic point of view.”

COVID-19 Economy FAQs

What does the unemployment picture look like?

It depends on where you live. The national unemployment rate has fallen from nearly 15% in April down to 8.4% percent last month. That number, however, masks some big differences in how states are recovering from the huge job losses resulting from the pandemic. Nevada, Hawaii, California and New York have unemployment rates ranging from 11% to more than 13%. Unemployment rates in Idaho, Nebraska, South Dakota and Vermont have now fallen below 5%.

Will it work to fine people who refuse to wear a mask?

Travelers in the New York City transit system are subject to $50 fines for not wearing masks. It’s one of many jurisdictions imposing financial penalties: It’s $220 in Singapore, $130 in the United Kingdom and a whopping $400 in Glendale, California. And losses loom larger than gains, behavioral scientists say. So that principle suggests that for policymakers trying to nudge people’s public behavior, it may be better to take away than to give.

How are restaurants recovering?

Nearly 100,000 restaurants are closed either permanently or for the long term — nearly 1 in 6, according to a new survey by the National Restaurant Association. Almost 4.5 million jobs still haven’t come back. Some restaurants have been able to get by on innovation, focusing on delivery, selling meal or cocktail kits, dining outside — though that option that will disappear in northern states as temperatures fall. But however you slice it, one analyst said, the United States will end the year with fewer restaurants than it began with. And it’s the larger chains that are more likely to survive.

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