Navigate Economic Landscapes in America by Angus Deaton

An Immigrant Economist Explores the Land of Inequality. Dive into the intricate world of economics with “Economics in America” by Angus Deaton, a thought-provoking exploration of the economic landscape that offers valuable insights for readers seeking to understand the complexities of the American economy.

Ready to gain a deeper understanding of the economic forces shaping America? Keep reading to uncover the insights and revelations waiting for you in “Economics in America.”

Genres

Economics, American History, Social Sciences, Politics, Finance, Public Policy, Economic Theory, Economic History, Sociology, Business

In “Economics in America,” Nobel laureate Angus Deaton provides a comprehensive examination of the economic challenges and opportunities facing the United States. From income inequality to healthcare disparities, Deaton offers insightful analysis backed by rigorous research and data.

Through engaging prose and compelling arguments, he explores the complexities of economic policy and its impact on society. Drawing on historical context and contemporary examples, Deaton sheds light on the forces driving economic outcomes and offers thought-provoking insights into potential solutions.

Whether you’re an economist, policymaker, or concerned citizen, “Economics in America” offers valuable perspectives on the economic issues shaping the nation’s future.

Review

“Economics in America” is a tour de force that sheds light on the complexities of the American economy with clarity and precision. Angus Deaton’s expertise and authority in the field shine through in this insightful exploration of economic trends and challenges. His meticulous research and cogent arguments make this book a must-read for anyone seeking to understand the forces shaping America’s economic landscape.

Whether you’re a student, policymaker, or concerned citizen, “Economics in America” offers valuable insights that will inform and enlighten your understanding of the nation’s economic dynamics. Highly recommended for anyone interested in the intersection of economics, politics, and society.

Recommendation

In this engaging though meandering book, British-born Nobel laureate Angus Deaton offers up his impressions of American-style capitalism. He gives the US system decidedly mixed reviews. Deaton found opportunity in America, moving to Princeton from England in 1983 and eventually becoming a US citizen. But he also sees much to criticize, particularly the Darwinian capitalism that chews up those at the low end of the education and income scale. Readers will find this a thought-provoking view of the American economy from an outsider, looking in.

Take-Aways

• The US healthcare system is wildly confusing.
• The United States is experiencing a wave of downward mobility.
• Economics as a science often overlooks inequality.
• The racial wealth divide in the United States is a chasm.
• The American pension system is much different from that in Britain.
• University economists enjoy generous salaries, but they endure scrutiny, too.
• Deaton’s Nobel Prize brought a wave of recognition.
• The global 2008 financial crash raised grave concerns about the usefulness of economics.
• The crisis illustrated an ideological divide among economists.

Summary

The US healthcare system is wildly confusing.

The medical system in the United States is much different from the health care schemes found in the rest of the developed world. In Britain, everyone has medical coverage. From the perspective of a British immigrant, the idea that a significant chunk of the American population has no affordable access to health care is baffling. Equally confounding, the US system is hugely expensive. The United States spends more on health care as a percentage of national income than any other nation. If the United States simply reduced its expenditures to the level of spending in Switzerland, which has the world’s second-priciest health care system, Americans would save $1 trillion a year.

“To an immigrant from a wealthy country anywhere in the world, the American health care system is a shock.”

One Princeton economist compared shopping for US health care to putting on a blindfold and going into a store to choose items, and only months later learning which products were charged at full price and which were discounted. Deaton learned about the opacity of the American system when he had a hip replacement. The procedure cost him about $7,000 out of pocket, and he never did learn how much his health insurance paid. In the US system, pricing often is a secret to consumers. Deaton was able to pay some of the out-of-pocket cost using a tax-advantaged savings account. If he had been uninsured, the procedure likely would have been ruinously expensive — and he’d be limping around on a painful joint.

“John Maynard Keynes’s ‘madmen in authority’ could hardly be bettered as a description of Washington during the Trump administration.”

Barack Obama managed to address some of the problems in the US system, enacting a health plan that extended coverage to 20 million Americans who previously had been uninsured. While the plan still left a segment of Americans uninsured, Republicans chafed at the notion of government encroachment. After Donald Trump was elected president in 2016, he set about trying to repeal Obamacare. Trump uncharacteristically acknowledged he had overreached when promising to offer care that was both better and less expensive. “Nobody knew health care could be so complicated,” Trump dissembled.

The United States is experiencing a wave of downward mobility.

The past half-century has seen a reversal of American prosperity. Since 1970, American men without bachelor’s degrees have experienced a downward trend in real wages. The financial poverty has metastasized: “Deaths of despair” have risen, driven by drug overdoses but also including suicide and alcohol-related fatalities. And even before the pandemic, life expectancies were declining for working-class Americans.

“America’s prided equality of opportunity is less real than it used to be, if indeed it was ever real.”

Meanwhile, the gaps in US benefits mean that large numbers of people are living in extreme poverty. This includes those squatting in the tent camps of US cities. In their book $2 a Day: Living on Almost Nothing in America, Kathryn Edin and Luke Shaefer report that several million children in the United States subsist below that level. When Deaton endeavored to compare poverty in the United States to that in developing nations, he used $5 a day as the extreme poverty line in America and $1.90 as the equivalent level in poor countries. He determined that the United States has a higher percentage of its population enduring extreme poverty than Sierra Leone or Nepal has.

“I and many others think that, because its safety net is so full of holes, extreme poverty is more prevalent in the United States than in other rich countries.”

The travel writer Paul Theroux had made similar observations, writing in Deep South that some towns in the former plantation belt reminded him of villages in Zimbabwe. Even so, Deaton’s findings brought criticism from all sides. The right-leaning Heritage Foundation responded that he had overestimated US poverty — and at any rate, that the cause was not systemic but “self-defeating and self-limiting behaviors.” Critics on the left also emerged, sticking to their “prioritarian” theory that a dollar donated to Africa did more good than a dollar donated in the United States.

Economics as a science often overlooks inequality.

The United States has become a place of extreme wealth inequality. For instance, Elon Musk was worth $219 billion as of 2022, while Jeff Bezos had a fortune estimated at $177 billion. The typical American household, by contrast, had a net worth of just $121,700. The wealth gap strikes many as unfair or unsavory. But economists generally resist such characterizations. Those from the Chicago school, in particular, argue that inequality is not only natural but irrelevant.

“Utopian rhetoric about freedom has led to an unjust social dystopia, not for the first time.”

Economist Milton Friedman, for instance, argued that estate taxes and other taxes on the wealthy would only discourage innovation and hard work. He supported tax havens as a way to limit governments’ ability to impose taxes. This ethos has been embraced by the wealthy and by big business. The gospel of free markets has been taken to illogical levels, to the extent that it encourages unhealthy degrees of wealth inequality. Meanwhile, income inequality has morphed from a non-issue in the United States of the 1950s and 1960s into a major challenge today.

The racial wealth divide in the United States is a chasm.

The popular myth says that the United States is a classless society — unlike Britain, where citizens rarely move out of the social status of their birth. In truth, America has an economic divide, but it’s determined by race rather than class. As of 2022, median earnings for Black males were 19% below those for white men. The Black poverty rate in 2020 was 19.5%, compared to 8.2% for white Americans. And the median net worth of Black households was $24,100, a fraction of the typical white wealth of $180,200. Black Americans are far likelier to be victims of crime or convicted of crimes.

“Put crudely, white majorities in some states do not like to pay taxes to support people who do not look like them.”

In another striking disparity, a Black male born in 2020 was expected to live to 68, compared to a life expectancy of 75 for a white male. Meanwhile, there’s also geographic inequality that’s based largely on race. The American states with the highest life expectancies tend to be predominantly white states, such as Minnesota, Iowa, Utah and North Dakota. And the states with the lowest lifespans are those with large Black populations, such as Mississippi.

The American pension system is much different from that in Britain.

When Deaton moved to the United States from Britain in 1983, he began contributing to Princeton University’s pension fund. Princeton’s fund followed the individualistic ethos favored in US pension schemes – any individual retiree’s wealth depends on his or her own level of saving and the success of the investment choices. The mindset might be described as “to each according to their luck in the casino.” Personal risks and personal rewards rule.

“In the individual approach, the results depend on individual choice and on the market, and the individual takes the risks.”

On the other hand, pensions in Britain place no demands on the individual saver. Instead, there are no decisions to make and no real individual risks to take. The philosophy of these plans runs along the lines of “to each according to their need.” There’s no real drama around the outcome. Some public employers in the United States, such as the University of California, still offer these more egalitarian brands of pension plans. But conservatives in America harbor deep distrust of government, and collectively managed pension plans have largely given way to more individualized plans.

University economists enjoy generous salaries, but they endure scrutiny, too.

Academic economists do quite well financially. A starting professor at a top university can expect to earn a salary of $180,000 to $220,000, and the teaching requirements tend to be light. Meanwhile, economics professors can supplement their incomes through consulting work and expert testimony. But these arrangements can sometimes backfire. For instance, the 2011 documentary Inside Job took to task economists who didn’t disclose financial relationships when writing newspaper columns or journal articles. In response, professional associations began requiring their members to publicly disclose any remuneration greater than $5,000.

“Economists can earn substantial fees for their outside activities.”

Even before the disclosure requirements, economics faculty members often felt they were doing battle with university administrators. At Deaton’s British job, faculty were required to win permission from the vice chancellor for any phone calls made before 1 p.m. The nitpicking continued when Deaton arrived at Princeton. Despite the school’s massive endowment, faculty were not allowed to expense travel by Acela trains, on the theory that the business-class train was too posh.

Deaton’s Nobel Prize brought a wave of recognition.

In 2015, Deaton learned he had won the Nobel Prize in Economics. Also in 2015, Deaton and Anne Case published research showing a dramatic decline in health outcomes among Americans. Middle-aged white Americans, and particularly those without bachelor’s degrees, were suddenly experiencing shorter lifespans. The culprits included drug overdoses, alcohol-induced liver disease, and suicide. The one-two punch led to a storm of attention, some welcome, some not. For instance, even though the paper had been finalized before Deaton won the Nobel, and even though Case — Deaton’s wife — was listed first, media reports often reversed the order of the authors.

“The Nobel is not just catching the bus but being run over by it. Over and over again.”

In a more welcome bit of attention, Deaton and Case visited President Obama in the White House, part of the tradition of presidents honoring Nobel winners, a tradition put on hold by Obama’s successor — Donald Trump wasn’t as keen on expertise as his predecessors. Obama immediately recognized Case and then made clear that he had read their paper in detail.Meanwhile, the handsome Nobel fee helped smooth Deaton’s retirement from Princeton.

The global financial crash raised grave concerns about the usefulness of economics.

In recent decades, many economists have bought into the gospel of free markets and laissez-faire capitalism. The result has been the rise of a predatory form of capitalism, one that’s ripe for reform. This reality was underscored in 2008, when Lehman Brothers failed and a global crisis ensued. The sudden collapse brought a number of questions, such as the one posed by Queen Elizabeth II during a visit to the London School of Economics: “Why did no one see it coming?”

“Many serious commentators continue to worry that democracy is incompatible with capitalism, at least capitalism as currently practiced and regulated.”

Capitalism, as it exists in 21st-century America, is brutal. Consider the role of the pharmaceutical companies that churned out addictive opioids. The pharma firms essentially encouraged an epidemic of addiction, then grew rich even as misery spread throughout American society. The Sackler family ran Purdue Pharmaceutical, the company that developed OxyContin. While the pain-pill cash cow finally fizzled out, the $6 billion settlement paid by the Sacklers amounted to less than half the profits they had made.

The crisis illustrated an ideological divide among economists.

To the market fundamentalists, politicians and policymakers need do little more than step aside while free markets work their magic. Given the lack of a major downturn in the decades after the Great Depression, economists thought they had figured out how to manage the economy. Then came the 2008 crisis and the Great Recession, and it became clear that economics was more complicated than many dismal scientists cared to admit.

“The crash in the fall of 2008 was a great surprise, rather like being told that the plague was back.”

The crisis also exposed deep ideological rifts. Keynesian economists believed that the proper response to the crisis was government stimulus. However, when the Obama administration proposed Keynesian policies, Republicans revolted. They argued that stimulus would unleash inflation and turn the United States into a socialist state. Some right-wing economists urged a different approach — now was the time to cut taxes rather than boost spending, they argued. The Cato Institute ran an ad claiming that government expenditures did not stimulate economic activity, and some 200 economists endorsed the analysis. However, the signatures of economists from Harvard, Princeton and MIT were conspicuously absent.

About the Author

Angus Deaton, winner of the 2015 Nobel Prize in economics, is the Dwight D. Eisenhower Professor of Economics and International Affairs Emeritus and a Senior Scholar at Princeton University. He is the co-author of Deaths of Despair and the Future of Capitalism.