An Immigrant Economist Explores the Land of Inequality

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Rob Johnson:

Welcome to Economics and Beyond. I’m Rob Johnson, President of the Institute for New Economic Thinking.

I’m here today with Angus Deaton, Professor at Princeton University, Nobel Laureate in 2015, and the author of a piece that was in the New York Times this past week, Without a College Degree Life in America is Staggeringly Shorter, with his colleague and wife, Anne Case. They’ve written a book together called Deaths of Despair and the Future of Capitalism, which I found very, very inspiring. It was haunting but inspiring because of what you excavated. But I have seen and reading and listening to the audio track, which is performed interestingly by the author of a new book that was just released at Princeton University Press, Economics in America: An Immigrant Economist Explores the Land of Inequality.

Angus I’ll foreshadow. My grandfather is from Aberdeen, my mother is Scottish. You talk about the foundation stones of your life there and at Cambridge and coming across, I got to grin just on that part of the agenda and there are so many things in this book I really want to encourage our young scholars and all of our listeners to take a deep dive. I’ll come back at the conclusion after you’ve persuaded them, but I’m very confident because this is an outstanding book at a time when the disorientation and the lack of trust and the tensions in politics lead someone like Martin Wolf to write a book about the crisis of democratic capitalism.

And you are digging into the dynamic between experts, policymakers, and the general public and who they will reach toward to alleviate the kind of pain that you describe in various segments of the book. Thanks for being with me today and thanks for writing this book. You’re making a big, how do I say, opening of our awareness to many dimensions and I look forward to exploring them with you. Angus, let’s start with just one question. Why did you write this book? What triggered you when you said, “I got to do this?” What’s the context in which that happened?

Angus Deaton:

Well, I’m not sure it started that way. I mean, you talked a little bit about my book with Anne Case, Deaths of Despair and the Future of Capitalism where we hit a clear message when we want to get this stuff out, whereas this book was rather different and partly it’s an attempt to tell my own story and also to tell the story of economics over the last 40 years. I’ve been active in economics for four and a half decades now, and things have changed a lot. I’ve changed countries and continents. So as you said, I grew up in Scotland, I was educated in Cambridge. I hung out with the Cambridge Keynesians and all those folks as well as a wide selection of people who were in Cambridge at that time. And then I came here and I wanted to tell the story of what happened to me here and how economics changed along with me over the last 40 years.

And I thought this might be useful for young scholars starting out. It’s sometimes critical of my profession, though one of my colleagues who’s not an economist said he read it as a love letter to my profession, which I think is perhaps a little bit strong, but there’s certainly a lot of affection there. And I think that economics has done a lot of good as well as perhaps gone a little astray in recent years. So that was, I wanted to communicate all of these things. I also wanted to give people an idea of what it was like to work as an economist because most people don’t have any idea what it’s like to be a professional economist any more than they know what it’s like to be a lawyer.

We don’t have emergency room economics on television series and so on. And they probably think we’re very tedious, boring people who have no idea what we’re doing. And I wanted to get some of that across. So it had multiple purposes. And it had started out, the genesis was a six monthly newsletter I’d written to the Royal Economic Society and lots of these pieces were incorporated into the book, but it was only when I began to see the thing as a whole and rewrite it in a coherent way that it took the form it has now. So I’m glad you thought it made a coherent whole because that’s been the problem with it from the very beginning.

Rob Johnson:

Well, it feels very, very real, very textured. For instance, when you arrive from Scotland and then England and you arrive in New Jersey and you’re talking about fast food restaurants and watching the Sopranos and how that impacted you as you started what you might call investigation of American economics.

Angus Deaton:

Right. And certainly, I mean we’d been brought up in Scotland to be both incredibly impressed by America and terrified of it. I mean, it was the country of Al Capone and it was the country of great military might and huge success. And that means an immigrant, when they first come here, tends to have unusual experiences that way.

Rob Johnson:

So there are different elements that I see you exploring, but big and strong at the outset was the question of healthcare, difference in cost, how it’s paid for, all kinds of different dimensions that have what I’ll call huge social ramifications as well as financial and economic ramifications. Describe to us what caught fire in your mind and imagination about American healthcare and how it might say contrast with the experiences that you’ve observed in other places.

Angus Deaton:

Yes, to an immigrant, certainly from Britain where the state runs the healthcare system and you have very little choice and it looks after you and where it’s often said that the National Health Service in Britain is the nearest thing we have to a national religion and that people are very fond of it. And when I grew up, I was born about the same time as the National Health Service and its benefits were really very notable to me and to my parents when I was growing up in Edinburgh and they got all sorts of subsidized goods. We really trusted our doctor who would come to visit us and who was a woman incidentally. And we thought of this as a wonderful national system that was really helping look after us. And when you come here and there’s money involved, and I think I say in the book, I didn’t know the difference between a pediatrician and a podiatrist, so even making an appointment when you had something wrong with you was a nightmare. Instead of calling up your local clinic where you always went and the doctor would tell you where to go.

So it was very hard to negotiate. And I wrote about the experience of having a hip replaced, just how difficult it was to you were supposed to treat this like a grocery store or you’d go to a Consumer Reports magazine and find out which was the best surgeon and then you couldn’t really do that and this was a very hard thing to do. And I came through that experience, but writing back to Britain about that experience, I shared how difficult and how different it was from Britain, but then that’s transmogrified into the work that Anne and I have been doing where we see the incredible costs and corruption in this system as being one of the worst things that’s happening in America, especially at a time when we’re spending more on healthcare than any other rich country in the world.

It’s a share of GDP and beyond that, even in total dollars, it’s bankrupting us. I mean, almost all of the dysfunction about government deficits in Washington is to do with healthcare. And people like Alan Blinder or Vic Fuchs have said if we don’t fix the cost of healthcare, we will never fix the budget problems in Washington. And the other way around is true too. So it’s just all about healthcare in some sense and there’s no reason to cost what it costs. And then we wrote this book about all these people dying and this falling life expectancy and this is happening when we’re spending so much money. So this is the real monster when you come to America, it’s not the mafia. That’s not what’s putting you in danger. It’s this grossly over inflated healthcare system in a land where health is doing worse than almost any other rich country.

Rob Johnson:

Well, as I was reading in the notes I made, there was awareness when you’re ill and afraid that you have inelastic demand. There was discussions about wealth extraction in the private equity business. I think as you mentioned, the total costs of healthcare in the United States is something like 18% of GDP, which is about double what’s happening in other countries. And so I sensed that and I’ll add the WHO ranks American number 37 in the quality of performance. When people talk about free markets and they talk about innovation, the idea is you’re going to get more and better for lower price because of the dynamism that we go through with innovation. And here it feels like we’re getting lower quality for twice the price. And the reason I’m underscoring this in such detail is we’re on the cusp of the baby boom aging out where the size of the retired population in relation to the working population will be unprecedentedly high. And asking those people who are still in the workforce to pay twice as much for low quality does not feel like economic justice.

Angus Deaton:

It’s worse than that. I mean, I don’t think it’s sustainable and it’s going to break down at some point and that will be a horrible mess. And it’s almost impossible to reform because there’s six healthcare lobbyists for every Congress person in Washington. And so they write the rules and also the Congress people need so much money to support their election then this healthcare is a very good source of money for them. So it’s very hard to see how you can possibly fix this given the political system we have and given the amount of money that’s in that healthcare system. So it’s very easy to get quite despondent about this or to see that it ending any way other than badly. I mean, other European countries have aging populations too. So looking after the elderly, which we are all members is certainly going to be a problem everywhere.

But we’re spending twice as much on it as we ought to be. And the numbers are pretty astonishing. One of my favorite ones is that if we were to spend the same share of GDP as Switzerland, which is about the second most expensive system, the savings would pay for all of our military expenditure one and a half times over. So it’s just an extraordinary, we’re talking about real dollars here.

Rob Johnson:

Yeah. The order of magnitude is daunting.

Angus Deaton:

Yeah. And that money is being used to funnel the lobbying, which is keeping the thing in place. And it’s a terrible system that’s just extracting money from ordinary people in order to support these very much too large system that’s also paying people very large salaries and paying hedge funds and private equities very large sums of money too. And then one of the things that Anne and I write about in the book is this idea that for most working people, the health insurance is funded through contributions by employers. And because everybody has a body and your body costs about the same to maintain whether you’re rich or poor, the companies have to pay about the same for their CEO as they pay for the doorman or the cleaning lady or the cafe worker and so on.

That’s been a major force in just shedding workers outsourcing, killing good jobs in America. So the jobs for less educated people in large companies in the US that used to be good jobs for less educated people just don’t exist anymore. And healthcare has a big chunk to do with that too. It’s also very inequality promoting because you’d much rather hire an educated person because they cost you less proportionally than an uneducated. It’s just like an atrophy every way you look at it.

Rob Johnson:

So as a stimulant, it’s exacerbating the compensation difference and the access to jobs between say the college educated and those with less education, not up through a bachelor of arts or bachelor of science.

Angus Deaton:

Right. And basically other European countries and Canada all have different ways of financing healthcare, but none of them do it like this. The burden falls more in proportion to income.

Rob Johnson:

Well, you mentioned Canada. I grew up in Detroit and when I was younger, people were telling me, that were auto executives, that were friends of my father, that they were considering moving plants to Ontario because the production of cars would go down in price now that they were competing with Korea and Japan because the state paid for the healthcare rather than the company. So there was an impetus towards foreign direct investment to Canada, which was maybe a plant eight miles away from downtown Detroit.

Angus Deaton:

It is really weird in some ways, Rob, because every CEO I’ve ever talked to about this would love to replace the healthcare system. So there are a few of them are, well, and maybe not CEOs of hospitals maybe, but if you talk to car manufacturers, you talk to CEOs all over the different sort of things, they just hate this and it’s a nightmare for them. And actually one of the things that had inspired Anne and I to get onto this was we were talking to actually a retired executive of an oil company and he told the story about they have an annual meeting with their HR people to decide what lies down the pike next year. And the HR people had come in and said, “Well, I’m afraid to tell you our insurers are saying the insurance premiums are going up 41% next year.”

And that’s not every year, but it was one year, it was 41%. So once they put the jaws back in place, they say, “What are we going to do? That’s a big expense. We’d have no profits left, we’d have to close the company, all the rest of it.” And they said, “Well, you bring in McKinsey and they’ll sort it out for you.” So they bring in McKinsey, and McKinsey tells them how to get rid of half of their staff and it’s all the low paid staff because that way if you get rid of a lot of people who are not paid very much, their contribution to the company is not all that large, but their contribution to the cost is the same as the CEO and the people who are making this decision.

So they just shed a whole amount of workers and that’s been happening over and over in America. And there are very few large firms anymore that hire their own support staff like that. And one of the things that means too is it didn’t happen very often, but there were people, there are always these stories of janitors or people in the mail room who finish up being a CEO and you belong to this company and it meant something in your life, not just the weekly paycheck or the monthly paycheck. And that possibility is gone, and healthcare has a large part to do with it.

Rob Johnson:

And you talk about the desire to reform. I often use musical parables when I’m talking to people. I come from a very musical family and I remember Bob Dylan had a song called One Too Many Mornings. What I’ve often said is, when you say capitalism is embedded in democracy and therefore morally justified, you may have to be concerned about things like does the media cover their advertisers, do politicians need big war chest to get reelected and do the places that fund experts think tanks and universities depend upon pleasing the very concentrated wealthy and avoiding the issue space. What ever I might say is the thrust of public policy and governance does not deal with these things. I worked for six years in the United States Senate, half on the Republican side, half on the Democratic side, all kinds of senators sitting on the floor at night or meeting in a restaurant always talked about they knew better things to do and they couldn’t get them done.

Angus Deaton:

Right, right. Well, there’s a lot of money involved and it’s hard to fight against money. And the idea that somehow that free markets are the foundation of freedom is all seemed to me a sort of odd one. I mean, I think Hyatt believed that capitalism would favor the poor, but I’m not sure there’s a lot of evidence of that, the oast capitalist history. And this label of free markets, you use this at a free market healthcare system. I mean, that’s just a label we use as propaganda because it’s not free markets at all. I mean, it’s the fixed oligopolistic, monopolistic market that’s dependent on politics and where everything is fixed. But they say if you try to do price control, you’re interfering with the free market. And that’s a really bad thing.

Rob Johnson:

And if you deploy the Federal Trade Commission to have a look at it, you’ll have all kinds of legislators trying to stop them.

Angus Deaton:

Well, there’s that. And the legislators of course block the investigations. The opioid firms are too many people in time.

Rob Johnson:

Well, the healthcare, I think it is so vivid right now, and I was very inspired that you started there, but I guess as a boy from Detroit, when you talk about poverty here and poverty abroad and how they interact, I mean people like Branko Milanović, who I greatly admire, talk about that globalization in a global sense alleviated a lot of poverty, say, as China and other emerging countries climb, but my hometown got crushed pretty hard. And the old parable that free trade can make everybody better off and nobody worse off required some transfer and payments and adjustment assistance that we never saw.

Angus Deaton:

And there was never any chance of happening either. We should have known that. And that’s one of my things that I think has been wrong with a lot of economics. And even now, I hear people arguing this. They say, “You don’t want to put any tariffs on, you don’t want to free mess with the free market. You ought to compensate these people.” And of course, it’s never happened ever, anywhere. And it’s deeply opposed by politics and by the gainers because the gainers don’t want to give up their gains. So I think the profession has been just much too blase about that and assuming that somehow everyone will be made better off or if they’re not made better off, it’s a short run thing and it’ll get sorted out over time.

Rob Johnson:

Some of my former colleagues on the Senate Banking Committee later served on the committee that would determine whether the Chinese exchange rate was being manipulated to the detriment of America and what they told me and was echoed by a Chinese leader when Donald Trump was criticizing the Chinese, it’s not Xi Jinping, but a next step or two down, he said, “Rob, you don’t make the transfers and when we get investigated to be manipulating our currency to support export led growth and undervalued renminbi, you’re not acknowledging that groups like Walmart and Nike are the leaders of what’s stopping your committees from suggesting the renminbi needs to appreciate.”

So they’re even conscious of the game being played within the United States and the money politics stopping. And my friends who I said sat on that jury say that was a very vivid part of what they were exposed, the pressures they were exposed to. But your chapter on poverty at home and poverty abroad, I remember there were many dimensions to it, including your sense of how you say your places of origin and what did poverty look like there in relation to America. What were you trying to build in that chapter?

Angus Deaton:

Well, I spent a lot of time, not a lot of time, but a fair amount of time over the last 40 years working at the World Bank, off and on. So I’ve been very exposed to the way people think there. And those are very dedicated people, very smart people, most of them, nearly all of them. And they’re very dedicated to making the world a better place. So the philosophy that I talk about in that chapter, which I call cosmopolitan prioritarianism, which is not a phrase that economists use very much, but philosophers know what it is. It’s just this idea somehow that any transfer from a richer person to a poorer person is making the world a much better place. And there’s a lot to be said for that view. There’s a lot of desperate poverty around the world. And so I think there was a genuine general belief on the left among cosmopolitan policymakers that making people in China better off at the expense of Americans could be morally justified because the Americans were so much richer than the Chinese or the Indians in the first place.

And I guess I’ve been chipping away at that in some ways. So if you talked about Detroit, well, if workers in Detroit give up their jobs and those jobs go to China, for example, they’re giving foreign aid, but no one ever consulted them. So they’re being asked to give up their jobs and in some cases give up their community structures and lots of other things, their social life, things that are important to them in order that admittedly much poorer people in other parts of the world can get less poor. And that reduces global inequality, which lots of people think is an issue. But the people who are left did not really consent to doing that, and many of them are going to get angry about it. And so the Chinese people who benefited don’t get to vote in American elections, whereas the people in America who’ve lost from it do get to vote in American election and they’re liable to make their displeasure felt in very uncomfortable terms for the rest of us, thinking of Donald Trump and so on.

So that’s one aspect of it. The other aspect is we have some very good ethnographers here at Princeton, especially Kathy Eden and Matt Desmond. Matt Desmond won the Pulitzer Prize with his PhD thesis pieces, looking at what was happening in housing markets among poor people, a wonderful book called Evicted. And they see this terrible poverty here, and there’s a part of it that we’re not really counting right. And I’ve always been interested measurement my whole life. That’s sort of what I do. And I think this dollar a day comparisons that became very famous and that the World Bank pushing, you might be able to live on a dollar a day here if all you had to buy was food, but if you have to buy housing and clothing and all the rest of it, there’s no way anyone could live.

So these Americans are under counted in these numbers. And I think when you make adjustments, then you get into this very contested territory of are there people in America who are every bit as poor as the poorest people around the world? And my guess about that is yes, and we just like to pretend they don’t exist.

Rob Johnson:

And at some level, poor isn’t just a comparison between their gross incomes because the difference in what it takes to live in America might be much more expensive so that [inaudible 00:28:35]-

Angus Deaton:

There’s that, but it’s even beyond that. I mean, one of the concepts that some of the philosophers talk about is impoverishment. In many places, if the society is structured that way, you can live a very good life on very little. And it’s more than just the cost of living. It’s how the society is structured and what your expectations are. Adam Smith wrote a long time ago about how no one really needs a linen shirt, but you couldn’t be respectable in Scotland if you didn’t have a linen shirt. And then it’s worth reading the rest of that package ‘cause it’s like in France, you need shoes, but only if you’re a man. Women don’t need shoes. And there’s all these comparisons across countries as to what you actually need to be respectable.

So that’s another part of the poverty calculation. I mean, you could be seen to be desperately impoverished because you didn’t have a linen shirt, even though no one in India has a linen shirt, for example. So these are complicated matters, and I think there’s a lot of really genuine and very serious poverty in the United States. Now, what the numbers are that has become so politicized that the measurement, I think, is buckled under political attacks from both sides. And I’m not sure we can do that anymore. And that’s happening globally too. I mean, Modi has suppressed the poverty measurement system in India. There’s pretty good evidence that they’re cheating on the GDP statistics, so the growth they’re proclaiming is not real or parts of it is not real. And so I think we’re losing control of measurement, and that’s one of the consequences of political decline around the world.

Rob Johnson:

In your recent piece in the New York Times with Anne Case, you talked about the acceleration of suicide and how it relates to whether or not you get a college degree. Why do you think the college degree is that critical ingredient in alleviating the fear or stress that might lead someone to terminate their life?

Angus Deaton:

Well, let me tell you a side story. Anne and I presented that work at a place called SAMHSA, which is the Suicide Branch of the National Institutes of Health in Bethesda. It’s actually outside of Bethesda. And we presented these numbers showing that people with less education were killing themselves more than people with more education. And the director said, “I’ve never seen anything like that in my life. We’ve known forever that suicide is more common among more educated people”, and that’s not true anymore in the US. And Durkheim, the founder, the father of sociology who wrote the book on suicide in the 19th century claimed that people who were more educated were more likely to commit suicide. And that makes perfect sense because especially for those of us who were first generation to be educated, we could lose our social moorings when you went to college, for instance, because no one in your family had ever been to college before.

It was a very different place, and that was the argument that Durkheim used, but it’s not true anymore in the US, if it ever was true, and we don’t really have very good data going back. And so that seemed to us a very shocking thing. And to us, the suicide is the canary in the coal mine because it’s the ultimate in self-destructive behavior. I mean, you literally destroy yourself. And so the suicide was a clue to the opioids, to the alcoholism that’s killing people in huge numbers too. And as someone once said about accidental overdoses, maybe they didn’t mean to die, but it wasn’t an accident that the needle was in their arm. So you’re indulging in behavior. Now, of course, this is not to excuse the pharma companies and all the rest of it that preyed on people in this way, but we think of suicide alcoholism and opioid overdoses as being symptoms of parts of society that are in real distress.

Rob Johnson:

Yep. Yep. The relationship, what I remember when I first read some of your work about diseases of despair and so forth, and I was looking for the geography of where the economy has taken a downturn, in other words, the stress emanating from the economy and the reaction whether mental illness, physical illness, or even suicide. But it was almost like, how would I say, it illuminated my childhood in Detroit because while my father was a physician and a jazz musician, my mom worked with the Detroit Symphony, many of their friends were manufacturers, rep auto executives, and so forth. And as it was crumbling, I was watching people in my neighborhood or parents from my friends at high school getting sick, going to Alcoholics Anonymous, all kinds of things that, how would I say, warned me that the economy affected the human being much more than just the numbers.

Angus Deaton:

I think that’s right. It’s harder to pin that down than you might think because for instance, there’s no, if you look at what we call deaths of despair and you track them through the Great Recession, for instance, they were going up before, they went up during, they went up afterwards, and you just don’t see any effect. We think of it as a longer term effect that there’s this crumbling away of the supports of the social structure, which has happened alongside the loss. We think loss of unions as being very serious for working class people here too, because unions were a source of power over your workplace. They were a source of community. Bob Putnam’s Solitary Bowler was bowling at a Union Hall, and I’m quite sure that Union Hall is not there anymore, and they were power in Washington and power in the states, and that’s pretty much all gone. Google spends more on lobbying than all the unions put together now. So there’s been a real loss of effective political voice [inaudible 00:35:51]

Rob Johnson:

So at some level, you could say that if you thought the system was healthy and there’s a transient downturn, it’d be painful, but you’re going to ride it out. When you think the system is the equivalent of bankrupt, that’s when the despair can deepen. And-

Angus Deaton:

That’s right. And economists have tended to say, “Okay, if you furniture mills in Carolina are closed down, they can go get a job in some successful city and you can turn mechanics into airplane manufacturers or something.” But that’s become almost impossible because the costs in those successful cities have become so high, and so it’s very hard for modest working class people to go live in New York City or San Francisco or Seattle and so on. And that seems not to be true in other countries around the world. There was really nice piece in New York Times a couple of weeks ago by Benjamin Applebaum, who’s one of their editorial writers showing how in Tokyo, in almost half the precincts in Tokyo, people running a small restaurant could afford to rent or buy an apartment. And that in New York City, there was no place in the city where that was possible. So we deprived people of their jobs. In the famous phrase of Sir Keith Joseph in Britain told them to get on their bikes, but there’s nowhere for them to go on their bikes. And that’s, I think, become a real problem.

Rob Johnson:

Well, turning a little bit in the direction of what I think might’ve been something that deepened the despair. Looking at the financial sector and its governance and regulation, I’m very familiar with another audible series called Meltdown. Two of my friends, David [inaudible 00:37:55] and Alex Gibney, who I partnered with on some films in the past, made something where the meltdown was not the meltdown of the financial markets, it was the meltdown of trust and faith in expertise in governance. And they talk very vividly about the Tea Party, occupy Wall Street, Republican House, Republican Senate, and then Donald Trump as the byproduct of what Joe Stig was used to say the polluters got paid.

And so there was a lot of anxiety about that since, and we’ve talked about money politics and so forth, but a deregulated financial system might’ve been a mistake in a change given digital technology that we learned about and had to put it back together. But now with FVB and some of the new bank for international settlements, it still looks like there are a whole lot of what people call shadow banks that have the characteristics like Enron of a special purpose vehicle where their positions are hidden and in a shock or a crisis of some sort, like a US Treasury default because of healthcare in the coming years, even our authorities as brilliant as Janet Yellen or the others would be, they won’t be able to see what’s coming onto their doorstep because we haven’t repaired the transparency and scrutiny and regulation of the financial system.

Angus Deaton:

I think that’s been a problem all a line, actually. I think that that financial meltdown in 2007, 2008 was really a key turning point in people losing their trust, not just in the financial sector, but in many institutions altogether, including government. But yeah, I’m not really a great expert on that. But one thing I would say is that I think economists under pressure from Chicago economics and free markets could look after themselves, really became too complacent about the harm that the financial sector could do. And there was a belief that modern finance, all these regulations that we’d had since the 1930s, you didn’t need them anymore because modern banking could look after itself.

And in fact, what modern banking had learned to do was to protect itself against scrutiny and do even more harm than before. So I think that’s been a really crucial event. I think up till then a lot of ordinary people believed that trickle down might work, and if these bankers got paid huge sums of money, somehow it was benefiting the rest of us. I think after that, people didn’t believe that anymore. They shouldn’t believe it in the first place, I think. But I think the rhetoric out of Chicago, the Libertarians actually did a lot of harm and a lot of people bought into it much more than they ever should have done.

Rob Johnson:

One of the papers that caught my attention, and by the way, I just want to say to our listeners and viewers, the tour that you took us on in the history and evolution of ideas in this book is outstanding. And I know a lot of schools now don’t teach history of economic thought or economic history as a core part, particularly of the graduate curriculum. But the way in which you brought people into this, it ignited in my thinking, which ones really got to me. And I remember George Stigler’s article on The Theory of Economic Regulation, which everyone at Chicago was touting because it essentially said Government’s going to make it a bigger mess, get them out of the way. And you and I talked about the plutocracy or the corruption of money and politics, but it doesn’t mean unfettered let it rip is going to be a rising tide that raises all boats.

Angus Deaton:

Well, I think George really believed that and probably believed that till his dying day. And there’s two stories about him. Well, one story is in the book, and another one I’ve learned since. When I was a young research officer in Cambridge in around 1970, I read this paper of his, which said that if you become an economist, you automatically become conservative. And I thought it was a typo. I mean, I’d never met a conservative economist and Cambridge, the most conservative people were Fabian Socialists. I mean on the other side were TRO and MAOIs and Paul Pot people and so on. So I thought, the guy’s crazy, this can’t be right. So that was something that I learned when I came here. Another story, George was always very kind to me. He involved me in some very interesting things when I first came here. He was interested in consumer behavior and consumer demand analysis and had read my stuff and picked up on me very early on. But there’s a story that I heard. Orley Ashenfelter is running this wonderful podcast about labor economists and industrial relations specialists and it’s really excellent. [inaudible 00:43:58]

Rob Johnson:

I remember him. I was a graduate student at Princeton. He was dynamo.

Angus Deaton:

He’s just done this recently and many of these are really wonderful, they’re fantastic pieces. But he did one with Jim Heckman and he asked Jim Heckman, as he tends on these podcasts, what was the best paper he’d ever written or what was his own personal favorite? And he says his own personal favorite was one where he’d gone down to the Carolinas and was looking at what civil rights legislation had done to the relative wages of blacks and whites. And he’d spent time talking to union people. He’d spent time talking to the workers, the legislatures, he’d done econometrics, done the whole shebang, and he’d find a very strong positive effect on black wages of the changes civil rights legislation. So he goes back to Chicago and presents it in the seminar, and George said, “You’re not serious, Jim, are you?” And Jim said, “Well, of course I’m serious.”

And George said, “But we know, that’s ridiculous. You’ve got to be wrong. I mean, I don’t know what you did wrong, but I know this result is wrong.” And Jim said, “Why?” He said, “Because we know the government can’t possibly do any good, and if you get results showing that it did some good, there must’ve been something else going on that you didn’t pick up.” And the other colleagues in Chicago took exactly the same view. I mean, they knew in advance that government could not help. Now, I mean Chicago school’s great contribution was to teach those of us who’d grown up in a different tradition that government could do harm as well as do good. That government was not always the solution. And that’s a very important thing to know. But the idea that government could never be the solution was one step too far. And I think the profession as a whole, the center of the profession, Democrats as well as Republicans, moved too far along that direction.

Rob Johnson:

Yeah, I think that’s what you say is very wise. The sense that I get is lots of people on the left jump into the debate presuming democracy works right and that there is no role of money or anything and if you just get out of the way. I would remember when I worked on the Senate Budget Committee, I was talking with Bob Dole one night. He said, “I’m really worried about these deficits.” And I met with my mentor, Paul Volcker, to help me get the job with the Senate Budget Committee. And he said, “We were talking about it and what essentially was you got to stop politicians from selling policy so the budget deficit in election years or in the year before election years doesn’t going to explode, and you’ve got to be able to maintain taxes.”

And Bob Doles said, “I think those are really good ideas.” I said, “Well, the other thing you could do is you could make every media institution put public service windows of time so people aren’t having to buy advertising to reach the public.” He said, “Oh, that’s a good idea too.” But he said, “The problem is if I put a bill like that together, I wouldn’t get 15 votes out of a hundred senators because they all know as incumbents they have an advantage and they would be putting their neck in the noose with challengers.” But I remember both parties in those days, before the Newt Gingrich era, a lot of Republicans, John Danforth, Nancy Kassebaum, Leonard Howard Baker, Pete Domenici, they were like a law firm that was running a country not, how do they say, Rebel Rousers for extremes.

Angus Deaton:

Performance artists.

Rob Johnson:

That’s good. That’s a good way to put it. But I do think on the left, we’ve seen a little bit too much of what I’ll call romantic sense of what the government can do and some of what I’ll call the neoliberal mask has played behind that notion as well, that government, if given more power, will do good as opposed to turbocharging what the concentrated power wants.

Angus Deaton:

Right. I don’t know why we can’t draw a middle way in these things, and we have to lurch from one extreme to the other all the time.

Rob Johnson:

You go through a number of different themes. Talk a little bit about your thought about retirement pensions and the equity market. I’m going to see a gentleman who’s an MD and a PhD and worked at Goldman Sachs give a talk on Sunday night. His name is Eifrig and he’s part of the Stansberry Research Group, and his whole focus is on sharing what I’ll call the Inside Wall Street game with a broad array of people to plan their retirement. What do you see as the dynamic of what’s happening with retirement pensions, stock market? What are the dilemmas that your exploration and your chapter explore?

Angus Deaton:

Well, I’m not sure. These are very big questions and I’m not sure I have an answer to that. But what I’ve observed over the years is this oscillation between belief in the stock market as this fairy godmother, which is the way I refer to it. And people say, “Well, how are we going to afford these pensions?” Well, we’re going to go down to the casino and we’re going to put everything on zero, and if we win, we won’t have a pension problem anymore. And if we don’t win and we lose, we’re no worse off than we are now, which a lot of state governments do. I mean, the state governments put money in Bitcoin for goodness’s sake. So I think this gambling and there’s a lot of misunderstanding about the stock market, and it’s been a huge issue in economics for a very long time.

I remember maybe what, 20 years ago or 15 years ago when Martin Feldstein and Peter Diamond were alternating as presidents of the American Economics Association, and one was saying all pension should go in the stock market. And the other one was saying all pension shouldn’t go in the stock market. And I’m more on the latter side, I must say. I mean, I think you shouldn’t be running this thing through the stock market, but there’s a big thing that’s happened, which I think is very important. And Jacob Hacker at Yale wrote a book about it called The Great Risk Shift. And so it used to be that for most people, they had pensions through their employers, and those were defined benefit pensions, [inaudible 00:51:30]-

Rob Johnson:

Meaning you got money from the company and the company in investing took the risk.

Angus Deaton:

Yes, the company took the risk. And now there aren’t basically no new defined benefit pensions. I mean, a lot of people have them from the past and some universities like California system still has defined benefit pensions, but very few employers offer those anymore. So the employer will make some contribution along with you and it gets invested in the market or somewhere else. You often, sometimes at least, have some control how it’s invested, and then you take the risk. And that’s really a big difference. And it’s made for a different society. I mean, I think it’s one of the things this educated elite, most of whom have defined contribution pension funds, which are invested in the market, have done very well out of the market. And so to the extent that workers have lost out relative to capital, people like us have been bought into that because our pensions are doing so well in this market. And that’s a mechanism that hasn’t been talked about very much, but also we’re all at risk. So if the stock market crashes, we’ll pay for that.

Rob Johnson:

I was going to say a financial crisis or-

Angus Deaton:

And that’s where there’s an ultimate issue because the amounts of money are enormous and how society organizes this tells you a lot about the extent to which it’s a purely individualistic society or risk is shared in a social way. I have a little story about fishing boats in the book, which I was rather pleased with to illustrate how that works and how risk can be shared quite profitably, and it may hurt some people, but to me that’s the way it ought to be done.

Rob Johnson:

Well, my sense is that there’s what I’ll call an amplifying feedback embedded in this system, which is let’s say we had a Ukraine or a Taiwan nuclear episode and the stock market crashed, defense budgets are going up, healthcare is still expensive, and we get into a crisis and the value of all the pension funds goes down with the stock market crash, that turbocharges the anxiety and despair of society precisely at the time when it doesn’t have the resources to counteract it.

Angus Deaton:

Well, we’re in a pretty bad place right now. No one’s set off a nuclear bomb yet, but that scenario could certainly come to pass and hurt a lot of people [inaudible 00:54:28]-

Rob Johnson:

But it can also be a little bit less acute, but it can be something like a profound episode on climate or something that shakes us all up to wonder if life on earth is going to go on. And we’ll come back to that. I know that’s towards the last chapter of the book, but it needn’t be something quite so vivid like the Jason Robot’s movie the day after. It can be something else structural that we can’t get out from our-

Angus Deaton:

Well, Of course, the risk is still there. So if we all still had pensions defined benefit pensions, then some of those scenarios you’re talking about, we’d lose those too. [inaudible 00:55:12]

Rob Johnson:

Oh, because of bankruptcy of companies or whatever. Yeah. Yeah, that’s right. The issues though related to retirement and pensions, do you have a vision of what you would like to see be the structure in the United States?

Angus Deaton:

I haven’t really put my money where my mouth is on that. I’m pretty sure that it should not be a privatized system and that I think the structure of social security as we have it right now is perfectly salvageable, and then people pop that up with their own. So that basic structure I don’t have a problem with.

Rob Johnson:

Okay. Let’s see, other things. Towards the end of the book, you describe in two chapters the work of economists and the Nobel Laureates. And I’m curious, I guess what I would say to hear your wisdom having been immersed in this for, as you said at the outset, 45 years, when and how does it take things systematically off course? I mean, I would say there’s a romantic parable about a really brilliant person working for the public good, but when you’re navigating through the peer review journals that you talk about, and I know Jim Heckman has done a lot of INET research on, and I remember you were on a panel at the AEA with him and Lars Hanssen and George Akerlof on these themes. What’s the real world in which an expert lives and what do they do and are there reforms of the profession of economics that you would try to inspire us to embrace?

Angus Deaton:

Well, I’m not that pessimistic about the profession. I mean, I do think that there’s lots of parts of it like all of us, that I think are pretty worthless. I mean, they’re doing things that I don’t think have much social value, and I’m not going to tell you what those are, because if you talk to some of my colleagues, they give you a very different list, and that’s probably the way it ought to be. We’re not… But there’s one very helpful thing. Well, let me give you the negative thing. The negative thing I’ve been pushing is I think we went a little too far in believing in the virtues of markets and we didn’t pay too much attention to. And also we tended to think of human welfare in terms of real material living standards and not paying much attention to community relationships between people and health, for instance. And I’m not the first person to say these things. [inaudible 00:58:20] has been saying those things forever.

But nevertheless, I don’t think we paid a huge amount of attention to that. And we pursued this relentless pursuit of efficiency without thinking very much or enough about who was benefiting from that efficiency and what effects pursuit of efficiency had on other things that mattered to people. I don’t think we talked enough to historians or to philosophers, sociologists who are much stronger on these community things than economists are. And I don’t think we paid enough attention to politics. We were very good at thinking up technocratic solutions to things that had no chance whatsoever being implemented. And the fact that our brilliant ideas were not implemented was because politicians are stupid or venal or something, and we didn’t think as hard about that as we should have done. So those are all things that we might’ve done better. The good side is compared with many professions, we’re a really open profession.

There’s no bars to young people coming into the profession and doing whatever they want to do. And young people with good ideas can be tenured at Harvard when they’re 25 years old. We’re much better about women than we used to be. And so there’s plenty of room for new ideas to come along. There are no barriers, there are no moats which preserve the gerontocracy like me in the profession. And that’s a really good thing. And it’s one of the reasons I wrote this book because I hope young people will be inspired to read it and think, “Okay, look at how much change there’s been in the 45 years that Deaton was in this profession. We could make even more change over the next 45 years”, and that would be a wonderful thing.

Rob Johnson:

But that which we might call dynamic flexibility and curiosity might allow us to build maps that are more helpful to society than if we stayed inside the contours. You talked about it as a religion in some ways of a religion that markets do the job. I had a very good friend who did a PhD, after working on Wall Street, did a PhD at Union Theological Seminary. And what he said to me was, at the time of the Protestant Reformation and then afterwards in the UK and in Scotland, the notion that the church worked for the people through God began to deteriorate. And the notion that you could speak in moral and ethical language and be trusted when the futile lords were running the church in England and Scotland led to people even like David Hume and Adam Smith talking to each other. I read some of my friend’s work about this, about needing to talk like value free technocrats.

But my friend went on to say the next chapter was everybody romanticized technocratic planning until Hayek stood up against the Soviets, Stalin and the like, and said, “You don’t have anywhere near the kind of perfect information you would need.” He borrowed Frank Knight and John Maynard Keynes. So then in the aftermath of Hayek and various working groups, we started to deify the market. The market went from being a tool to being the center of a religion, an article of faith. And I think that what you’re saying, I guess to follow that now is that there’s enough discord and distrust of expertise that we have to put a north star together again, but the flexibility has returned and the ability for people to debate and be differing about something but not attacking each other might be a goal that we need to pursue.

Angus Deaton:

I think that’s exactly right. But I’m not sure there’s [inaudible 01:03:05]-

Rob Johnson:

We’re all in search of a common good.

Angus Deaton:

Yeah, that’s right. We should get back to the common good. I’m all in favor of that. Anyway, thank you.

Rob Johnson:

What is your thought at this juncture? If you had a brilliant dynamic young student walk in the door, what path would you send them on? Who’s going to… What’s-

Angus Deaton:

I think economics is a good path, and I think I’ve never regretted the fact that I started out as a mathematician. Being able to count is important, but I would tell them to read and to read history, read philosophy, and bring those humanities to bear and to the quantitative work that they’re doing. The numbers are really important, but they need to be interpreted in terms of the humanities more broadly.

Rob Johnson:

Well, I know people like Anne Switler teaching a relationship between economics and sociology at Berkeley and others, which you might call stretching into this space, she even brought up the sociology of suicide in a lecture that George Akerlof shared with me. And I know a lot of young people in my Young Scholars Initiative that are very interested in people like Keith Hart and others reaching across the boundaries of the discipline to anthropology, sociology, and psychology. And I think that [inaudible 01:04:53]-

Angus Deaton:

But we should preserve the things we’re good at. We’re good at counting. That’s really good thing.

Rob Johnson:

But what I like is you’re good at those things, but you’re trying to be better by augmenting it, by synthesizing all these other dimensions without forfeiting that which is at the center that economists are good at.

Angus Deaton:

Yeah, that’s a good way to summarize, I think. And yeah, I agree with that.

Rob Johnson:

Well, my young scholars are going to be delighted to read this book, to listen to it, and like I said at the outset, it was startling to get the audible version of the book not read by a professional auditory wizard or DJ or podcast host like me. The accent, the feeling that came from your reading the text, just feeling your sense of emotion and passion was like a second dimension of the book, and it was really, really beautiful.

Angus Deaton:

Well, that’s terrific. Thank you very much.

Rob Johnson:

Thank you for that.

Angus Deaton:

I was very skeptical of it, and it was a lot of work. It takes a lot of time, but-

Rob Johnson:

Yeah. Well, you did a brilliant job.

Angus Deaton:

My kids say I sound much more Scottish on the audible than I do in real life.

Rob Johnson:

Well, I’m going to cheer for that given my family heritage.

Angus Deaton:

Yeah. Absolutely. Well, good for you.

Rob Johnson:

Anyway, Angus, I want to thank you for taking the time today. I know my Young Scholars Initiative is going to look and reach out to you again and again and again, and I’ll try, how I say, I won’t have to put a lot of effort into it. When a couple of the leaders who’ve already got the book have read it, our social media amplification system is going to run wild.

Angus Deaton:

[inaudible 01:07:00] Well, thank you very much. It’s been a lot of fun talking to you.

Rob Johnson:

It’s been my pleasure. And thank you for today and thank you for the wonderful work you’ve done throughout your career and this, how would I say, this super experience adding on top of that is really great.

Angus Deaton:

Thank you.

Rob Johnson:

Talk again soon.

And check out more from the Institute for New Economic Thinking at ineteconomics.org.