First Get Your Nobel?

Just this past Monday Steve Sailer published a fairly lengthy excerpt from an article by a Nobel winning economist, Angus Deaton. The article appeared at the web site of the International Monetary Fund (which is not bookmarked in my feed reader). In the article Deaton—at the age of 78—pretty comprehensively revised his ideas on,well, economics. Here’s the Wikipedia short version of who Angus Deaton is:

Sir Angus Stewart Deaton (born 19 October 1945) is a British-American economist and academic. Deaton is currently a Senior Scholar and the Dwight D. Eisenhower Professor of Economics and International Affairs Emeritus at the Princeton School of Public and International Affairs and the Economics Department at Princeton University. His research focuses primarily on poverty, inequality, health, wellbeing, and economic development.

In 2015, he was awarded the Nobel Memorial Prize in Economic Sciences for his analysis of consumption, poverty, and welfare.

Here is Sailer’s very brief intro to the excerpt he provides:

Angus Deaton was fortuitously awarded the (semi-) Nobel Prize in economics just a few weeks before his landmark paper (with his wife Ann Case) on the rise of “deaths of despair” among the American white working class was published in 2015. Because he had just had his name in the headlines for winning the Nobel, Case and Deaton’s crucial paper was given the attention it deserved upon publication.

Obviously, Deaton was awarded the Nobel for his lifetime of research in his specialty field. On the other hand, I think it’s also fair to surmise that his rethinking of his views is linked to the paper on “deaths of despair”, cited by Sailer. What we see in Deaton’s recantation—which is what his article really amounts to—is that Deaton abandons the pretty garden variety Classical Liberal views he formerly espoused for what could loosely be termed Trumpenomics.

No doubt Deaton would object to that tag, and its perfectly true that there are eminent economic precedents for the views Deaton now advances, as well as a minority of non-conforming economists working today. Still, many of the positions that Deaton sketches out have become associated in the non-academic mind with Donald Trump. See what you think. What’s very clear is that his views now very much fly in the face of the public liberal orthodoxy, whether or not you choose to associate them with Trump.

RETHINKING MY ECONOMICS
ANGUS DEATON

MARCH 2024

Questioning one’s views as circumstances evolve can be a good thing

… Like many others, I have recently found myself changing my mind, a discomfiting process for someone who has been a practicing economist for more than half a century. I will come to some of the substantive topics, but I start with some general failings. I do not include the corruption allegations that have become common in some debates. Even so, economists, who have prospered mightily over the past half century, might fairly be accused of having a vested interest in capitalism as it currently operates. I should also say that I am writing about a (perhaps nebulous) mainstream, and that there are many nonmainstream economists.

Power: Our emphasis on the virtues of free, competitive markets and exogenous technical change can distract us from the importance of power in setting prices and wages, in choosing the direction of technical change, and in influencing politics to change the rules of the game. Without an analysis of power, it is hard to understand inequality or much else in modern capitalism.

One assumes that any “analysis of power” would inevitably involve an analysis of who’s got it and who doesn’t, how power is acquired, how it is maintained and retained, and what use it’s put to. Hey, a lot of us are rethinking those matters.

Philosophy and ethics: In contrast to economists from Adam Smith and Karl Marx through John Maynard Keynes, Friedrich Hayek, and even Milton Friedman, we have largely stopped thinking about ethics and about what constitutes human well-being. We are technocrats who focus on efficiency. …

Why have we largely stopped thinking about ethics, despite the moral hysteria that is so prominent a part of our woke culture? Probably because philosophy and ethics have largely been relegated to the realm of subjective personal values by Classical Liberalism—as opposed to science. Mainstream economics prides itself on being a “science”, thus using advanced math as a badge. Ethics doesn’t involve much math, so …

Empirical methods: The credibility revolution in econometrics was an understandable reaction to the identification of causal mechanisms by assertion, often controversial and sometimes incredible. But the currently approved methods, randomized controlled trials, differences in differences, or regression discontinuity designs, have the effect of focusing attention on local effects, and away from potentially important but slow-acting mechanisms that operate with long and variable lags. Historians, who understand about contingency and about multiple and multidirectional causality, often do a better job than economists of identifying important mechanisms that are plausible, interesting, and worth thinking about, even if they do not meet the inferential standards of contemporary applied economics.

Calling into question the privileged position of “empirical method” in contemporary economics is a rather heretical position.

Humility: We are often too sure that we are right.

Now Deaton moves on the really heretical implications of what he has labeled the “general failings” of the economic views he used to hold.

Second thoughts

Like most of my age cohort, I long regarded unions as a nuisance that interfered with economic (and often personal) efficiency and welcomed their slow demise. But today large corporations have too much power over working conditions, wages, and decisions in Washington, where unions currently have little say compared with corporate lobbyists.

In the first paragraph, above, Deaton stated that he wouldn’t be getting involved in the debate over corruption—presumably (because I’m not an economist) as corruption affects economic realities. Clearly, when Deaton addresses the interrelated question of unions, corporations, and government he is addressing the issue of power. And where there is power corruption cannot be far away. I think Lord Acton said that. And sure enough …

Unions once raised wages for members and nonmembers, they were an important part of social capital in many places, and they brought political power to working people in the workplace and in local, state, and federal governments. Their decline is contributing to the falling wage share, to the widening gap between executives and workers, to community destruction, and to rising populism. …

I’d be interested to know what Deaton means by “rising populism.” The way he links it to other trends that he clearly sees as undesirable suggests that he regards it as something akin to “rising damp.”

It’s also interesting that Deaton states that unions “brought political power to working people in the workplace and in local, state, and federal governments.” I would ask, what about those people whose workplace is “local, state, and federal governments”? Does Deaton’s new found tolerance for unions extend to the unionization and empowerment of government workers? As a lifelong government employee, I have to say that I have always adamantly opposed the unionization of government workers as fundamentally opposed to the public welfare. Without exception government unions have led to union capture of government and the rise of a privileged class whose interests are at odds with those of the people who fund government. Grist for the analysis of power mill.

When efficiency comes with upward wealth redistribution, our recommendations frequently become little more than a license for plunder.

Note that that brief sentence-paragraph leads into a reflection on “free trade.” I’m guessing, therefore, that the rubric of “efficiency” covers the hollowing out of our manufacturing sector, the financialization of our economy. That seems to be the gist of what follows.

I am much more skeptical of the benefits of free trade to American workers and am even skeptical of the claim, which I and others have made in the past, that globalization was responsible for the vast reduction in global poverty over the past 30 years. I also no longer defend the idea that the harm done to working Americans by globalization was a reasonable price to pay for global poverty reduction because workers in America are so much better off than the global poor. I believe that the reduction in poverty in India had little to do with world trade. And poverty reduction in China could have happened with less damage to workers in rich countries if Chinese policies caused it to save less of its national income, allowing more of its manufacturing growth to be absorbed at home.

I had also seriously underthought my ethical judgments about trade-offs between domestic and foreign workers. We certainly have a duty to aid those in distress, but we have additional obligations to our fellow citizens that we do not have to others.

That was a distinctly Trumpian theme. And the next paragraph certainly reflects Trumpian themes, as well—including as regard to our obligations to fellow citizens.

I used to subscribe to the near consensus among economists that immigration to the US was a good thing, with great benefits to the migrants and little or no cost to domestic low-skilled workers. I no longer think so. Economists’ beliefs are not unanimous on this but are shaped by econometric designs that may be credible but often rest on short-term outcomes. Longer-term analysis over the past century and a half tells a different story. Inequality was high when America was open, was much lower when the borders were closed, and rose again post Hart-Celler (the Immigration and Nationality Act of 1965) as the fraction of foreign-born people rose back to its levels in the Gilded Age. It has also been plausibly argued that the Great Migration of millions of African Americans from the rural South to the factories in the North would not have happened if factory owners had been able to hire the European migrants they preferred.

Economists could benefit by greater engagement with the ideas of philosophers, historians, and sociologists, just as Adam Smith once did. The philosophers, historians, and sociologists would likely benefit too.

I look forward to a great national debate on Deaton’s new ideas. Perhaps candidate Trump will, once again, lead the way.