Angus Deaton

Perhaps economists are their own worst enemy. In Economics in America, Princeton’s Angus Deaton tackles all the issues, of, for and by economists, and with great and refreshing perspective, puts them in their place. And as more and more authors are finding, it is the predatory corporations and the rich that are the source of America’s misery. It’s a marvelously engaging book, from someone who actively participates in all aspects of economics, from teaching the basics to being awarded a Nobel Prize for his insights – the best of which hadn’t even yet been published.

There is no beating about the bush in this book. Deaton immediately seizes on the absurd American healthcare system as its greatest threat. Not only do Americans pay far more, their results are far worse, their life expectancy diminishes before their eyes, and Big Pharma ensures it stays that way (There are three healthcare lobbyists for every member of Congress, he says). Healthcare is warping the economy out of shape, holding America back severely. And despite Americans hating it, predatory corporations and the rich have a total lock on keeping it this way.

There are systemwide repercussions – unintended consequences (perhaps). Healthcare is an agent of inequality, a theme he returns to repeatedly. For example, he says employers keep wages for most employees terribly low because they must pay for their health insurance. Another tactic is to hire only part-timers, who are not only poorly paid, but don’t get health insurance at all. And finally, healthcare costs are a major reason for employers’ interest in artificial intelligence - to eliminate as much costly labor as possible. Rationalizing healthcare as a government service equal for all could rebalance the entire US economy and society. And far from not being able to afford it, the USA would save over a trillion dollars a year. Which could solidify social security and have plenty left over for other programs.

It is the same victims, the working class without university degrees, who are committing suicide at ever higher rates, taking opioids and alcohol until they kill them, and lowering the life expectancy for Americans in general (Those without university degrees have been seeing their life expectancy at age 25 decrease continually since 1990 – along with their purchasing power).

Deaton’s findings are not secret, not derived from questionable sources, and not exclusive to him. Yet they came as a shock to the whole country when Dr. Anne Case and he published a paper explaining it all. It was so controversial and dramatic that President Obama invited them to the White House to talk about it. (The lead author Anne Case, a top economic authority in her own right, is Deaton’s wife.) Deaton said it raised more activity around him than his receiving the Nobel Prize in Economics the year before, something that turned his whole life upside down (He describes it as being run over by a bus - back and forth, repeatedly). Of course, in the intervening seven years, nothing has been done to change the system. If anything it has become a far deeper problem. Even though it is now clear what is happening. Such is the power of the predators.

And this healthcare knot is very old news. Deaton cites economist Kenneth Arrow, whose decades-old study clearly demonstrated “that markets are incapable of delivering healthcare in a socially acceptable way.” But the USA alone persists in it, having been purchased by corporations against the will of the people. The result, he says, is a system “spectacularly well-designed for enriching a few under the protection of politicians who enable them, but appallingly designed for improving or even maintaining health.” This is the life of the economist. Do the digging, prove the premise and watch as it is all totally ignored.

This is the kind of insight the book provides: not all at once, not in your face, but pieced together as he ruminates on various aspects of the economy and in economics itself. He thoroughly examines the whole higher education system. He reflects on the sorry state of economics as a discipline, and the poor reputation of economists themselves. It is all the result of a lifetime of observations and the ability to see them for what they are really worth, making the book a terrific insight into life in the USA.

His life sets the stage for broader realizations such as: “I have come to understand the extent to which state and federal government in the United States often work, not to protect ordinary people, but to help rich predators make ordinary people poorer.” With this firmly in mind, Deaton is off to examine how and where everything is heading in the wrong direction, more or less evilly. But always frustratingly.

From an economics standpoint, “free markets with their rent seekers are not the same as competitive markets; indeed, they are often exactly the opposite.” And American markets are anything but competitive. The label free market is a fraud.

Also, countries with high inequality like the USA have the least equality of opportunity, the very opposite, he says, of what is drummed into every American. In truth, “the rich hoard the best opportunities for themselves and their children.”

In further attacks on higher educations, he says “Administrators seem more concerned to use the university to protect the endowment than to use the endowment to protect the university.” The result is suddenly huge expenses for students, combined with far less freedom, far more administrative busywork and poorer results. Most of the teaching is now done by adjunct professors – on contract, part time, for little pay or benefits, and no possibility of tenure. Just like working class Americans everywhere. But universities are fabulously rich, for the first time, ever.

He also has strong words for financial advisers, a new plague vacuuming up the hard earned savings of the populace. Their claims of paying for themselves by only taking one percent annually is bogus, he claims, by giving one simple example. “I note that thirty years at 3 percent is only 75% of thirty years at 4%, and thus the adviser is reducing their final wealth by a quarter.”

He discusses a measure that is new to me – senator income. If each US senator is worth say $100 million annually to their state, then each Wyoming resident has a senator income of $345. Compare this to New York, where because of a much higher population but still just two senators, senator income per resident is $10.50. In California it is $5. He says inequality in actual personal income follows along closely - “pretty much the same.”

Deaton has a delightful sense of humor and understatement that keep him from screaming at the state of everything. He goes on about endless conferences where economists give each other awards and start new associations. He remembers one in Hungary where he was involved with some world-famous economists who decided to start their own society for applied economics. They met at “the beautiful Gerbeaud Café in Vorosmarty Square; fifty years later, I remember more about its menu than the program of the conference.”

Back on healthcare, he “wonders” how it is that rich European countries, with deeply subsidized or even free prescription drugs have managed to avoid an opioid epidemic. Might it be because they manage the drugs in clinical settings, or forbid sales reps from pestering doctors to prescribe more drugs, or perhaps even because lobbyists do not own every lawmaker?

Deaton is a British immigrant. He has seen the rough treatment of immigrants himself. Having seen the way things work in the US, he waited a very long time before deciding to take out citizenship. He has seen the massive benefits of having immigrants, and the self-defeating efforts to reduce and eliminate them. It also gives him the ability to directly compare economic policy and events in both Britain and the USA. It is a race to the bottom as neither country is paying the least attention to their findings.

He has a lovely chapter on what it’s like to win a Nobel Prize. How Sweden takes it as seriously important as a coronation in the UK, how he was met at the plane and all his documents were processed for him without him even being involved, wined and dined, treated with respect, chauffeured around in his own limo, and with media from around the world suddenly interested in what he had to say.

It is Deaton’s frustration that decades of work by economists have resulted in essentially no structural changes in the way the USA works. Part of that frustration comes from outliers in the discipline, who argue against totally solid research and unimpeachable results, making all of economics seems fuzzy, if not a total waste. But for the brief interlude Economics in America represents, major things fall into perspective and become transparent at last.

David Wineberg… (altro)