Angus Deaton on Economics in America

Angus Deaton on Economics in America

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When economist Angus Deaton immigrated to the United States from Britain in the early 1980s, he was awed by America’s strengths and shocked by the extraordinary gaps he witnessed between people. Economics in America explains in clear terms how the field of economics addresses the most pressing issues of our time—from poverty, retirement, and the minimum wage to the ravages of the nation’s uniquely disastrous health care system—and narrates Deaton’s account of his experiences as a naturalized US citizen and academic economist.

Your book is an unusual mix of memoir, economics, politics, and biography. It is often quite funny. Why did you write it that way, and what do you hope people will find in it?

AD: I wanted to tell the story of the last 40 years of economics in America, not by writing about economics directly, but by telling stories about economists and their adventures in research and in policy, including my own story. Economics is often seen as boring or obscure, but many economists are not. I wanted to write a book that would be fun to read.

I was born in Scotland and moved from Britain to the United States in 1983, attracted by a higher salary and because there were so many great economists in America. I tell the story of what I found here mostly, although not only, about what I found in the economics profession. I write about the economists that I met along the way, about their work, and how their work affected policy and politics. I tell some good stories. But it is not all fun. There is much wrong with economics today, and the book becomes darker as it goes, just as America itself has become a darker place. While I am critical of some of contemporary economics, there is also affection, and one non-economist surprised me by saying that the book is “a love letter to my profession.”

In what ways did you, as in immigrant, find yourself lost in America?

AD: I write about my worries about the mob, and about how I “shot” a diner in a Burger King. How I was screamed at by a busy cop from whom I’d asked directions, and how, in my confusion I mailed an important package in a trash bin. I felt lost when one of my new colleagues, apparently seriously, quoted Proudhon’s maxim that “government is theft,” though I understand a little better after living here for four decades. How a nightmare in the pensions’ office turned into a lovefest. How, on the day I became a citizen, after 30 years in the country, I was asked if I had recently worked as a prostitute. How, in the wild west of American healthcare, I, who did not know the difference between a pediatrician and a podiatrist, struggled to find a good surgeon to replace my hip.

You are often complimentary about your profession and its work. What is your favorite example?

AD: I tell the story of my (then) young Princeton colleagues, David Card and Alan Krueger, who looked at the evidence to see whether modest increases in the minimum wage would cost some workers their jobs. They found no evidence of job loss, contrary to what almost all economists thought. I describe how they were abused and insulted by economists on the right, as well as lobbyists from the fast-food industry. They were accused of ignoring science and told that “water doesn’t flow uphill” that their work was like “cold fusion” and accused by a Nobel Laureate of being “camp-following whores.” But eventually the theory caught up with the evidence. Exploitation of workers, it turns out, was not just a theoretical curiosity, but a real thing that is becoming increasingly important. When employers are making money out of their employees by keeping their wages low, higher wages don’t cost jobs, but they do cost employers’ profits. It is a great example of evidence and theory coming together, not at once. but over time and advancing our understanding. It also brought back older ideas of inequality as being about class, as in a conflict between capital and labor. David Card was awarded the Nobel Prize in 2021 for the work; Alan Krueger was not eligible because he had committed suicide in 2019.

Economists are often involved in policy, so that they attract attention and controversy in a way that is unusual in most other disciplines. Is this a good thing, or a bad thing?

AD: It is both good and bad. Good because it shows that people care about what we are doing. Bad because the politics can undermine the science. If no one ever paid attention, we would not be doing our jobs. Because people have different values, and different interests, a new finding, or even just new data, will often be unwelcome to some, and there will be challenge and debate. One chapter is called “the politics of numbers.” It is about the triumph or anger that meets new evidence, especially on hot-button topics like poverty, unemployment, inflation, or economic growth. The bad side happens when politics swamps the science or corrupts the evidence, so that progress is replaced by lies and by name-calling. And it is not only the politicians, but sometimes the profession itself. It is distressing when so many “findings” are predictable by the political leanings of the economists who find them. The best and most valuable economists are those who can change their minds with the evidence. Even so, topics like the measurement of poverty have become so politicized and so polarized that we may have lost the ability to say anything that is both useful and truthful. Of course, this is true of other areas of science—like public health—where polarization has become an increasing threat.

In what areas has the profession has done not so well?

AD: Economics has long focused on the idea of efficiency, too much so in my view, and many follow Lionel Robbins’s definition of economics as the allocation of scarce resources among alternative ends. According to this, the main object of economics is to make sure the allocation is done well. Markets are good at promoting efficiency. They do not need any centralized assistance, and they generate prices to guide the allocation. The price system is certainly one of the great wonders of the world. Prices allocate things to the people who want them the most, or at least who have the money to express their wants.

Beyond that, there was an influential libertarian school—Milton Friedman was its most famous practitioner—that argued that markets were an essential component of freedom, that any attempt to interfere with markets, no matter how well meaning, could only make things worse. Governments are always the problem, and never the solution. Today, most but not all economists rightly regard these views as extreme, though there are many politicians who make their bread and butter by endorsing these ideas. Even so, the economics profession accepted too much of this libertarian creed. This has sometimes had very bad consequences, as in trusting to financial markets to police themselves before the Financial Crisis, encouraging free movement of capital across national borders, or accepting—and in many cases celebrating—an all-volunteer military. Other approaches to economics, that we should think about inequality, or about poverty, or about things that people care about other than money, were downplayed and neglected. I include myself among those who was a little too carried away at least for a while. Mea culpa.

Anything else of note that you would like readers to focus on?

AD: An economics prize was added to the Nobels in 1969. The prize has always been controversial; one economist argued that the prize was one of the three worst things in the 20th century, along with the population explosion and the “infernal” combustion engine, and he was one of the winners. But it has changed our profession. It generates a lot of happiness, but also some jealousy as in “he won my prize.” It can also reshape history, and I tell the story about how two close friends collaborated on a project that, to them, was the best work of their lives. Each was awarded a Nobel Prize separately, but only one of them received it for their collaboration, so that the other was written out of their joint work, a source of much sadness as well as a historical distortion. I also tell my story of what it was like to win a Nobel prize, and the unexpected delights of a week in Stockholm in winter.

Angus Deaton, winner of the 2015 Nobel Prize in economics, is the Dwight D. Eisenhower Professor of Economics and International Affairs Emeritus and Senior Scholar at Princeton University. He is the author (with Anne Case) of the New York Times bestselling book Deaths of Despair and the Future of Capitalism (Princeton).