Interview with Angus Deaton

This week, Project Syndicate catches up with Angus Deaton, the 2015 Nobel laureate in economics and a professor emeritus at Princeton University.

Project Syndicate: Before the US midterm elections in 2018, you challenged claims that President Donald Trump had been good for the economy, highlighting, among other things, that strong stock-market performance reflects the redistribution of income from labor to capital, at the expense of the vast majority of Americans. Trump’s defenders would no doubt point to low unemployment and rising wages, even for those at the bottom, in defending the president’s performance. In advance of November’s presidential election, what should American voters understand about the Trump economy?

Angus Deaton: The US has undergone a long and very slow recovery from the Great Recession. But that recovery is attributable mostly to the actions of previous administrations, though Trump’s tax cuts also played a role. And while the employment rate has risen (as it always does when the economy is doing well), and unemployment is low, the employment rate remains lower than before the Great Recession, and substantially lower than in 2000.

In fact, the long-run trend of less-educated Americans dropping out of the labor force shows no sign of having abated. The quality of jobs is deteriorating as large firms outsource many of their operations. Meanwhile, the stock market is booming in response to giveaways to corporations.

1. 

   The White Swans of 2020

   NOURIEL ROUBINI

   Financial markets remain blissfully in denial of the many predictable global crises that could come to a head this year, particularly in the months before the US presidential election. In addition to the increasingly obvious risks associated with climate change, at least four countries want to destabilize the US from within.

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PS: You’ve highlighted the correlation between US counties with elevated mortality rates for white people – especially owing to what you and Anne Case call “deaths of despair,” caused by suicide, drug overdose, and alcohol abuse – and counties that voted for Trump. You’ve also pointed out that deregulation, which Trump has fervently embraced, can literally kill – the opioid crisis being a case in point. In other words, Trump’s policies are simultaneously deepening and capitalizing on his voters’ misery. The same goes for the gutting of US environmental regulations. What would Trump’s successor, whenever he or she arrives, have to do to break this cycle?

AD: I’m not sure that it is a cycle that feeds into itself, or that is in any way inevitable. It is just bad policy. The opioid crisis should not have happened. (It has not happened in other countries.) US regulators allowed it. Those regulatory failures were not introduced – or ameliorated – by the Trump administration.

Corporate interests are not the only ones that matter. There is nothing stopping a new administration from recognizing that and working for others.

PS: Information and communications technology “need not doom us to a jobless future,” you argued last year; “enlightened policymaking still has a role to play.” What policies – or policy goals – should top the list?

AD: New technologies have been the primary source of prosperity for more than 200 years, but they often cause disruption, sometimes for a long time. A more comprehensive social safety net would be a good start. In my view, one key is to reduce the incredibly high costs of health care in the US, and to break the link between health care and employment. What I do not think would solve the problem – or even help – is a universal basic income.

PS: As someone who argues for economic policies that look beyond growth, what do you think of alternatives to GDP, such as Bhutan’s Gross National Happiness index, the UN’s Human Development Index, or the US-based Genuine Progress Indicator? Are such broader metrics useful, or are they, like US poverty data, too vulnerable to manipulation to underpin real-world change?

AD: Some such broader metrics have proved their usefulness as supplementary information, but they are not alternatives to GDP. In my view, the priority should be to improve GDP itself, excluding many of the things that do not improve human wellbeing (like useless but profitable medical procedures), and ensuring a much better account of distribution – in particular, how personal disposable income is spread across different groups.

That said, the pre-eminent position of GDP is undeserved. In fact, if GDP is interpreted as a measure of how well the economy is serving its people, it is often extremely misleading.

BY THE WAY . . .

PS: When it comes to addressing rent-seeking in the US, you’ve identified policies that would help – such as reframing and enforcing antitrust laws – but noted in 2018 that you are “not very optimistic” about their implementation. Do any of the Democratic presidential contenders give you more hope? Alternatively, are there other less-than-ideal, but still useful policies that seem more feasible?

AD: One key step would be to improve the public’s understanding of the extent of rent-seeking – for example, through investigative journalism of particular cases. News organizations such as The Washington Post and CBS News did a terrific job of exposing the abuses around opioids.

But the bad guys are still extremely powerful. The health-care industry has five lobbyists for every member of Congress, and those who do their bidding rarely seem to suffer electoral consequences. Little wonder so many young people think American democracy is broken.

All of the Democratic contenders give me more hope than Trump does. But change will be difficult for anyone.

PS: Using money as a proxy for utility simplifies things when building formal economic models, but philosophers, as you’ve noted, reject the equation of financial gain and wealth with happiness. Assuming that the economics profession and society alike would benefit if economists were familiar with the relevant philosophical arguments, which works should be required reading?

AD: Amartya Sen is always worth reading. I particularly like Development as Freedom and The Idea of Justice.

Another excellent book by philosophers who think hard about economics is Economic Analysis, Moral Philosophy, and Public Policy, by Daniel Hausman, Michael McPherson, and Debra Satz. In it, they work through a number of different philosophical and ethical systems and show how they would apply to a series of ethical questions in economics. I think all economists should read it.

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PS: The US federal government recently reported that Americans’ life expectancy rose for the first time in four years in 2018. The increase was only a month, but it was driven by the first decline in drug-related deaths in 28 years, including in hard-hit states like Ohio. Has the US turned the corner?

AD: I certainly hope so, especially as far as bringing the opioid epidemic under control is concerned. But there is a long way to go, and the other deaths of despair – suicides and deaths from alcoholic liver disease – continue to rise, especially among those without a college degree. A one-month increase in life expectancy is a terrible outcome, compared with the two-year increase that the US used to achieve every decade, and that other rich countries continue to come close to achieving, albeit somewhat more slowly.

PS: You’ve described the immediate aftermath of winning the Nobel Prize in Economics as “being transported to a fairyland.” What was most surreal, and most rewarding, about that experience?

AD: The Swedes have been giving these prizes for more than a century, and they have perfected the process. The Swedish people – from ordinary working people to the royal family – have embraced the Nobel prizes, so winners become guests of the entire country, standing at the center of a glittering and magical winter festival that lasts a full week.

You get to bring your co-authors, your friends, and your family. My grandchildren will remember it all their lives. It really was like being in one of the fairylands that I read about in books or saw in theaters as a child in Edinburgh.