24 November 2023
Economics in America
An Immigrant Economist Explores the Land of Inequality
2023, Princeton University Press, 280 pages,
Reviewer: Bridget Rosewell
I’ve been wondering how this book feels to a non-economist or a new student of economics. Would it make you want to become one, or learn more about the subject? And the answer is that I don’t know. For an economist, especially one near in age to Angus Deaton or engaged in the same policy problems, or who has read his Letters from America in the RES Newsletter, it is completely fascinating. So let’s hope that many people read it and are not turned off our possibly troubled but important subject.
One thread that runs through the book, and which might be a source of confirmation that economists don’t know what they are talking about, is that too often theory has had primacy over empirical evidence. Deaton starts with a section on minimum wage policy, and how the theorists simply rejected evidence that raising the minimum wage did not necessarily reduce employment, not by criticizing the evidence but by asserting that it couldn’t be true.
That debate continues especially strongly in discussing poverty, income distribution and welfare, for work on which Angus Deaton received a Nobel Memorial Prize in Economics in 2015. For a British audience, the book is an insight into the difference between how economics is practiced in the USA compared to here. That is perhaps particularly relevant to members of the SPE as it shows how economists move between academia and government much more easily than we do, but also how that means that particular schools of thought become embedded in areas of policy practice, rather than being led by the evidence.
Not that we are always good at being led by the evidence, which after all does not exist about the future but only the past. Nonetheless, the debates on this side of the Atlantic seem less dramatically ideological. I noted that the words belief and believe cropped up quite frequently and we should reflect how much of our conclusions and indeed our search for evidence is based on the conclusions that we believe should be reached. Policy based evidence is much more common than evidence-based policy and this too is a thread that runs through the book.
He has a section on ‘cosmopolitan egalitarianism’ which takes an international perspective and focuses on reducing global poverty. But he argues that this needs a rethink when the consequences for the victims of globalization are to increase domestic inequality. That’s a bold statement when economists have lauded increasing trade and the benefits of globalization for almost as long as economics has existed as a subject.
A couple of sections look at the Nobel prizewinners that Deaton has known, and especially those that he respects. There was a part of me that enjoyed this, since I have met several, but a part that wondered whether this was something that the publisher felt would help sell the book. Having said that, a chapter on what economists actually do would potentially interest non-economists and I hope that they get that far.
Perhaps I should have come first to this part of the review, since I think it is the most important. On the other hand, this section does not come first in the book and it is definitely in the conclusion. This is the analysis that the economy has been failing Americans without a four-year college degree for decades.
Even when average incomes were growing, this section of the population were being left behind. Moreover, he shows that in the USA mortality among this group is rising with falling life expectancy and rising suicide rates. These ‘deaths of despair’ are documented in other writing with Anne Case. He challenges whether losing good manufacturing jobs to poor countries is sufficient compensation for cosmopolitan economists, if poverty in one’s own country is increasing and the healthcare system is inaccessible even after Obamcare.
Deaton has taken American citizenship, but hung on to his British passport too. Indeed, it took him some years to overcome ambivalence about the USA, and he recounts some of his experiences dealing with the kind of bureaucracy that can make one feel entirely unwelcome, although perhaps not on the scale that some of the Windrush generation experienced, actually deported because the Home Office destroyed their records.
Deaton does not explicitly point out that those who voted for Trump did so because they felt the existing system let them down, but it is certainly implicit in his description of a country where policies do not seem in support of what used to be called the working class and he clearly worries about how that can play out.
We face in the UK a similar but different mixture of discontents. Policies aimed at levelling up are an attempt to prevent that fracture between those without and those with a degree. The welcome interest in apprenticeships from both employers and employees can help to bridge some of these gaps, but not quickly. And what Deaton does not mention is the risk of hair-shirt environmentalists whose policies may play well in urban areas with strong service sectors but will undermine manufacturers, farmers, small towns and rural areas.
The book is a great read, thoughtfully and well written. I see that it is available on Audible, read by the man himself. I think that would be a great place to start. The book with Anne Case – Deaths of Despair – is also there. I might get that next.