No matter which indicator you’re using, American inequality has been increasing in recent decades. Whether you’re measuring the growing wealth gap, the stagnant wages of the middle class, or the concentration of wealth and power among a small group of elites, every indicator unfailingly suggests that inequality is getting worse. Nobel Laureate Angus Deaton joins the podcast to talk about his recent book on the subject, Economics in America: An Immigrant Economist Explores the Land of Inequality, in which he explains how his own experience as an immigrant has shaped his understanding of American inequality and its impact on upward mobility.
Angus Deaton is a renowned economist and author known for his groundbreaking work in the fields of poverty, inequality, and health. He is a 2015 Nobel Prize Laureate and 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 at Princeton University.
Twitter: @DeatonAngus
Economics in America: An Immigrant Economist Explores the Land of Inequality https://bookshop.org/p/books/economics-in-america-an-immigrant-economist-explores-the-land-of-inequality-angus-deaton/19785471?ean=9780691247625
Nick’s new book, Corporate Bullsh*t, is out now! https://www.corporatebsbook.com
Website: https://pitchforkeconomics.com
Twitter: @PitchforkEcon
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Nick’s twitter: @NickHanauer
Sir Angus Deaton:
Leave the free market, keep government out of things. In an economy that you’re pretending is an economy like that, an Economics 101 economy is simply just a license for plunder.
Nick Hanauer:
Yeah.
Sir Angus Deaton:
And that is exactly what we have.
Nick Hanauer:
Sir Angus is both of the orthodoxy and a critic of the orthodoxy, right?
David Goldstein:
Like you Nick an insider.
Nick Hanauer:
Yeah, a little bit. Yeah, definitely an insider. Yeah, hardcore.
Speaker 4:
From the Home Offices of Civic Ventures in downtown Seattle, this is Pitchfork Economics, with Nick Hanauer, the best place to get the truth about who gets what, and why.
Nick Hanauer:
I’m Nick Hanauer, founder of Civic Ventures.
David Goldstein:
I’m David Goldstein, senior fellow at Civic Adventures. One of the great pleasures of this job, Nick, and that means both working with you, and especially doing this podcast, is man, we get to talk to such interesting, smart people.
Nick Hanauer:
Yes.
David Goldstein:
It is an incredible privilege to read a book by a Nobel laureate, and then to say, “Hey, let’s come on the podcast and talk about your book.”
Nick Hanauer:
No, it’s fantastic, and it is a great gift. And wrapped up in that gift wrapper today, if I may say so, if I may torture that metaphor, is Sir Angus Deaton is joining us, who’s a renowned economist. An author known for his work in fields like poverty, and equality and health, he is one of the Grand Poobahs of the economic world. He’s the 2015 Nobel Prize Laureate, and currently a senior scholar and the Dwight D. Eisenhower professor of economics and international affairs emeritus at Princeton University. He’s written a billion books, but among them the, Greatest Escape: Health Wealth and the Origins of Inequality, Deaths of Despair, and the Future of Capitalism, 2020. And his newest book-
David Goldstein:
Which we should point out, he wrote with his wife, Anne Case.
Nick Hanauer:
That’s right. And I think he’s written most of his recent things with Anne Case, and his newest book, Economics in America: An Immigrant Economist Explores the Land of Inequality, which just came out. But, it would be so interesting to talk to Angus, Goldy, because the book is part memoir, part biography, part criticism of the profession, and interestingly, Sir Angus is both of the orthodoxy, and a critic of the orthodoxy. Right?
David Goldstein:
Like you, Nick, an insider.
Nick Hanauer:
Yeah, a little bit. Yeah, definitely an insider. Yeah, hardcore. But, I suppose in his later years, and I’m not sure if he would agree with this characterization, sort of broken with the orthodoxy, and been more of an outsider and a critic of the problems that economics has, and the problems in the world that economics has created. It’s worth noting that the last two chapters of his book are, Did Economics Break the Economy? And, Is Economic Failure a Failure of Economics? So, he definitely is wrestling with these questions.
David Goldstein:
If he’s a proponent of the orthodoxy, he’s not selling it well.
Nick Hanauer:
Yeah, exactly. So with that, let’s talk to Sir Angus Deaton.
Sir Angus Deaton:
My name is Angus Deaton. I’m a longtime professor at Princeton, now emeritus, which means retired. I’m the author most recently of Economics in America: An Immigrant Economist Explores the Land of Inequality, but I’m also the author with Anne Case of three years ago, of Deaths of Despair and the Future of Capitalism, and before that, a book called The Great Escape.
Nick Hanauer:
Fabulous. Tell us about your new book, and what inspired you to write it.
Sir Angus Deaton:
Well, some of the pieces were occasional pieces that I’d written over the years, and it occurred to me, and to Princeton Press that they might, with a suitable amount of work, be turned into sort of a [inaudible 00:04:39] book. So, it’s partly memoir, sort of about me, but also, memoirs of other economists that I’ve met over the last 40 years. And through that, I wanted to give people a view of what it was like to be an economist, what economists do, whether they’re really all corrupt, or whether some of them were actually nice. I wanted to talk about some good economics, some bad economics. Towards the end, I think I want to talk a little bit about how my profession, I think has gone a little bit off, maybe more than a little bit off the rails, and that a lot of the problems that we face today, and especially the polarization, and a lot of very angry, very disillusioned people, has something, not everything, but something to do with the way we practice and interpret economics.
Nick Hanauer:
Yeah. So, you call America the land of inequality. It wasn’t always this way. There is a suspicious correspondence between when you came to the United States, and when it started to get more unequal, I should say.
Sir Angus Deaton:
I think it had begun a little bit before that. The hinge date of around 1970.
Nick Hanauer:
Yeah.
Sir Angus Deaton:
And also, one of the things that I feel very strongly about is that the inequality you’re referring to there, which is sort of rising income and wealth inequality, it’s extremely important, but it’s not the only sort of inequality that’s really important. I mean, most Americans, most people who talk about these things are certainly familiar with racial inequalities of a horrendous, and long-lasting sort. But the other inequalities that I’ve been much concerned about is between people who do and do not have a four-year college degree, and the terrible outcomes that are besetting the two thirds of the population without a college degree.
David Goldstein:
Right. Now, we talked with Michael Sandel a few weeks back about that, and I know you quote him in the book, and you go into this in great detail. This is really the, as you point out, and it started in the mid 1970s, this is really the big sort of shift, that not only has the stagnant, and declining wages of non-college educated, well, men particularly, but it’s led not just to rising inequality, economic inequality, but also to this degradation of the American political system.
Sir Angus Deaton:
Yes. And also for a lot of people, it’s a degradation of their communities, the degradation of power, which they used to have, perhaps most notably through unions, which hardly exist anymore, and perhaps most seriously of all, I’m not sure I would put it up there, but somewhat, declining life expectancy, in a way that’s just incredibly unusual.
Nick Hanauer:
Yeah. That part is particularly shocking. But can you speak a little bit about the good, the bad, and the ugly of economics over the span of your career? You have touched so many things. You’ve been awarded a Nobel Prize, you’ve been at the center of the orthodoxy, and a critic of it. If you could, just expand on that, as you reflect on your profession, and your career, what does it make you think and feel?
Sir Angus Deaton:
Confused, I think.
Nick Hanauer:
Me too.
David Goldstein:
Good, good.
Nick Hanauer:
Yeah, we’re… Yeah.
Sir Angus Deaton:
It’s quite hard to be at the center of the mainstream, and do all these things I’ve done like being president of the American Economic Association, for instance, [inaudible 00:08:40] compare to the AEA, it’s always been very diverse. So, this was an association that had both Milton Friedman, and Ken Galbraith as presidents. So, it’s never taken a very narrow view of things. But, come back to the good, the bad, and the ugly. I mean, I think the good is it’s in some ways become much broader. When I came here permanently in 1983, it was becoming more and more mathematical. It was all concerned with general equilibrium theory, or with macro, or with micro-theory. And there were really very few people in top universities, in economics department, working on things like poverty, or inequality, let alone race. So, people do work on these things now, so there’s been a big broadening of topics.
We’re also very good compared perhaps with some other social sciences at working with data. We can sort of count, like accountants. And as the world has become more data intensive, that has certainly opened up lots of avenues which have been explored by some very good people, and with very interesting results. The bad, and the ugly, maybe I can run those two together. I never even quite sure what the distinction is, is that economics has been very narrow in its focus, compared with its origins. So, if you read Adam Smith, or Karl Marx, or Ricardo, or John Stewart Mill, or even Keynes, there’s a very broad set of issues including philosophy, some psychology, but a serious contemplation of the human condition in all its strengths, and weaknesses, and in all its dimensions. Whereas a lot of economics over the last 20 or 30 years has become obsessed with efficiency, with the sort of allocation of scarce resources among competing ends, to use Lionel Robbins’s famous definition.
And actually I think a lot of economists today, if you ask them what economists do, they would say that. Whereas other economists have had much broader statements, I mean, Pegu talked about being motivated by withered minds, and mean streets, meaning doing something about poverty. Keynes talked about efficiency, social justice, and liberty, and trying to reconcile those three things. We’ve sort of given up on the second two of those, and seem to focus almost entirely on efficiency.
And that means economists have come out against lots of things that are really important to ordinary people, including minimum wages, for instance. We’ve become very in favor of unrestricted free trade, and free transfers of capital around the world. We’ve become very pro-immigration, and have not really been thinking very hard about whether there might be flaws in that case, or whether the people who worry about it may have a legitimate reason to worry about it. And so, I think we’ve taken over the political, and economic discourse in a way that has missed a lot of really important things, and thus contributed to the polarization, and to in some sense, the disenfranchisement of working people in America.
David Goldstein:
Why do you think that happened? Because it’s certainly a transformation that has taken place over half a century, more. Is it something in the broader culture? Or is it something, some pathology unique to economics? Because it really seems to function differently than a lot of other sciences, or alleged sciences.
Sir Angus Deaton:
Yeah, I don’t know the answer to that. I mean, there clearly are very broad social forces going on. So, people talk about neoliberalism, and the eventual retrenchment of the New Deal, as we move back to something that looked much more like the Gilded Age, with both the legal system, and the economic system, and looking like that, and the redistribution of power away from labor, and towards capital, which has swung back and forward several times in American history. So, these broad social forces were going on. I think economics picked up on that, but also contributed to it. The mathematization of economics didn’t help. Also, the fact, when you think of the huge increase in [inaudible 00:13:33] going to college, and everybody who gets a four-year degree has to take an economics course somewhere along the way, and those Economics 101 courses are pretty brutal things, and I think tend to conform to the story I’ve been telling about focusing on efficiency, and not much else.
David Goldstein:
That raises an important question, because we have confronted other economists before, and they have said, “Oh, it’s not economics. Everybody knows that the story they tell in the Econ 101 textbook is a vast simplification, and the problem is not enough people have gone on to take higher level economics to know that what they were taught in that first course isn’t broadly applicable, and isn’t necessarily true. They’re just useful fictions,” as Krugman has said. Is our problem, and I say, our, Nick and I, is our problem with economics, or is it merely with introductory economics textbooks?
Sir Angus Deaton:
So, why are the economics… I think this idea, this is a useful simplification, I just don’t buy at all. I mean, can you imagine what Marx’s Econ 101 would’ve looked like?
David Goldstein:
Yeah.
Sir Angus Deaton:
So, I think that Economics 1 0 1 has done a huge amount of damage, and there’s a group in London that’s putting together an online free textbook, which takes very different attitudes. And actually, I’m encouraged that quite a number of my Princeton colleagues are using that text.
Nick Hanauer:
Yeah, that’s Sam Bull’s effort, right?
Sir Angus Deaton:
Well, it’s partly Sam Bull’s, and other people at University College London, and so on. So, it’s a lot of people, but yes, an attempt to take a very different view of these things. So I think the idea is a [inaudible 00:15:27] simplification. I mean, the problem is, most of these people are going to only do one course.
Nick Hanauer:
Yeah.
Sir Angus Deaton:
So then they go away and go to law school, and they turn into the Federalist Society or something. I mean, that’s not really a good way to do it.
Nick Hanauer:
So Angus, one of the things that just really surprises us is the intensity of resistance to empirical evidence that contravenes some of these ideas. Famously, I mean, in your book, you note some of the people who attacked Alan Krueger, and Andrew Card when they first did that first empirical study, James Buchanan’s famous quote in the Wall Street Journal about them being camp following whores and all that stuff. Where do you think that anger comes from? Why did it make them so angry that the empirical evidence seemed to suggest that raising wages didn’t kill jobs?
Sir Angus Deaton:
Well, I tell part of that story. I think incidentally, I may be the one who was responsible for finding that Buchanan quote. It’s in a tiny little addendum, buried deep in the Wall Street Journal somewhere. So, it’s not something that’s very obvious, and I was sort of appalled by it at the time. First of all, it’s money. So, a lot of the opposition was coming from the fast food industry, and what’s it called, the Employment Practices Institute or something, which [inaudible 00:17:04].
David Goldstein:
Right, we call it the other EPI.
Sir Angus Deaton:
The other EPI.
David Goldstein:
The Evil EPI.
Sir Angus Deaton:
The Evil EPI, the Evil Eye. I like that. And it’s not obvious when you go to the website where the money’s coming from, but of course it is obvious that it’s coming from the fast food industry, but that’s not so surprising, right? After all, you can expect businesses to defend themselves. It actually is somewhat of a confirmation of the original case, because the original case only really makes sense if this money is not… The truth is, that it’s coming out of profits, not causing unemployment. Right?
David Goldstein:
Right.
Sir Angus Deaton:
Someone told me the other day that Buchanan has a textbook in which he even says that, that if there’s monopsony in the fast food market, then increasing wages will actually just cut profits, and doesn’t cut employment at all, at least over a modest range. Anyway, so it’s not a surprise that people vested interests defend themselves. What is a little more disturbing is how many economists are happy to line up behind them.
David Goldstein:
That’s what I’m after.
Sir Angus Deaton:
And I don’t have much to say about that. I think there are a lot of people out there who are corruptible, if you call it that, but they’re certainly prepared to adopt pleasing positions, [inaudible 00:18:30] were the professor at the London School of Economics put a notice on his door saying, “Pleasing positions adopted for cash.”
David Goldstein:
But surely that’s not why most economists entered the profession.
Sir Angus Deaton:
No, that’s true. But that doesn’t mean they’re not susceptible to the blandishments that come their way. And if you ask them about this, they’ll say things like, “I’ve never said anything that I’ve felt the slightest bit uncomfortable with.” Some of which traces back to the way they think about economics. And it’s clear that most economists… Well, I don’t want to go there, but money is very tempting. To some extent, I came to America because I got a much higher salary here, much higher standard of living, and that turned out to be true. So, I’m not trying to sell myself as a model of virtue. And something that your listeners might want to know is this is not a book saying, “Angus Deaton was right, and all these other bad guys were wrong.” It’s very much a book of how we were all wrong, or we all overweighted some things and not enough others.
David Goldstein:
Right. So, you consider yourself a mainstream economist?
Sir Angus Deaton:
It’s not clear that other people do, but, yeah, I think so. But I mean, it may be that in recent years, maybe I’m just getting old and senile, or maybe I’m a little further distance. Another thing that’s really important is I grew up in a very different place, and I talked a little bit about that in the book. Where I was, my first job was in Cambridge, in England, a very lowly job as the research assistant, and that could not be further away from Chicago, libertarian economics than anywhere. I mean, that is sort of the ultimate opposite in some sense.
Those people regarded Cambridge mass economics as the enemy, let alone people in Chicago, who were pushing libertarian ideas. So, they were very left wing. Joan Robinson was sort of a Maoist. There were a lot of Trotskyists there and so on. A lot of them were actively out organizing communist unions. So, it was a very different sort of place from any sort of American department. And I think those ideas, and those feelings have stayed with me, and they’re always really there, ready to try and interpret the world I’m living in today.
Nick Hanauer:
So Angus, I’m not asking a rhetorical question. I’m asking a serious question. So, this podcast is dedicated to telling a new story about economics and is in many ways an attack on what we see as the orthodoxy, a bunch of ideas that look to us as a protection racket for the rich, that the idea that the economy, for example, as a Pareto optimal equilibrium couldn’t be a more powerful idea to protect the status quo.
Sir Angus Deaton:
Absolutely.
Nick Hanauer:
Because in that worldview, anything you do to mess with it decreases the efficiency, and harms everybody. The idea that price equals value, that people are paid their marginal product, that GDP equals welfare, all these ideas, while internally consistent, and mathematically elegant, when taken together, and taken seriously, and interpreted into policy, can’t but create any outcome other than making rich people richer, and everybody else poorer. Do you substantially agree with that?
Sir Angus Deaton:
Substantially.
Nick Hanauer:
Yeah. And so my question is, what advice would you give us, to be the most useful critics of the system, in order to advance a better world? If you were our boss, what would you tell us to do?
Sir Angus Deaton:
That’s too hard a question. I’ve never been very good at getting other people to do things I wanted them to do. And I mean, I think that in some ways has helped me, because I often work alone, and think alone. But to come back to that, I mean, I was reading a book by Andrew Koppelman the other day about libertarianism, which I liked, and it’s sort of a critique of libertarianism from a socialist, from a left-wing perspective.
And he very clearly… He has a lovely phrase, which I can’t quite quote here, but I can’t quite remember precisely, but it’s exactly what you’re saying. I mean, if libertarian rhetoric, which is, leave the free market, keep government out of things, in an economy that you’re pretending is an economy like that, an Economics 101 economy is simply just a license for plunder.
Nick Hanauer:
Yeah.
Sir Angus Deaton:
And that is exactly what we have. And I think I’ve tried for years to track it down, but I remember reading Joan Robinson saying, American Neoclassical economics, I guess the term neoliberal didn’t exist then, but she said, “American Neoclassical economics is an apologia for American capitalism.” And I wish I could find where she wrote that, but I’ve so far not been able to, and even ChatGPT doesn’t seem to be able to find that.
Nick Hanauer:
Oh, interesting. Well, I substantially agree, and they’re a feedback loop. I mean, American capitalism didn’t always view the only purpose of the corporation to increase corporate profits for shareholders. Right? That’s a relatively new invention from the ’70s, by the way, from economists, right?
Sir Angus Deaton:
Well, or not. I mean, it’s chickens and eggs again, right?
Nick Hanauer:
Yeah.
Sir Angus Deaton:
There were very rich people funding those economists to spread the [inaudible 00:24:43], the story of the Mont Pelerin Society and all that sort of stuff as part of it, and those people… So, I think Milton Friedman really believed what he thought, and he was happy to take money to help push those ideas, and the businessman who funded him. But there’ve been cycles of this too. I mean, there have been earlier periods in American history where corporations were different, and there wasn’t much corporations in the early funding days when, as you said, there was a large middle class, and not very much inequality of any kind.
David Goldstein:
In your book, you define both conservative, and progressive mainstream economists, virtually identically, with the exception that progressives are more willing to make the big trade-off for welfare purposes. I’m curious, on the heterodox side, outside of the mainstream, where do you think the greatest opportunities are in the evolutionary camp, complexity, where-
Sir Angus Deaton:
Just rethinking the things. I’m glad you picked that up, incidentally, because I wrote that very carefully, and I hoped someone would notice it.
David Goldstein:
Oh, we say the exact same thing, so of course I picked up on it. We’ve been saying that about Democrats, that they’re just as bad as Republicans. They’re just willing to-
Nick Hanauer:
Make the trade off.
David Goldstein:
Make that big trade off, but they think it’s there.
Sir Angus Deaton:
They didn’t used to be.
David Goldstein:
I know.
Sir Angus Deaton:
There’s been a big change. That is the big change that’s happened is within the Democratic Party, that’s sort of moved away from a party of working class people, largely supported by unions to become a party of Econ 101, and these educated elites, who’ve all done Econ 101.
Nick Hanauer:
We call it trickle down light.
Sir Angus Deaton:
Trickle down light. Okay. So, that I think is becoming pretty widely understood. I’m encouraged by young people in the profession, who are thinking in a very different direction. One of the good things about economics is it’s very open, so you don’t have to wait until you’re 60 years old to get a good job, in a powerful institution when people are changing. And there are important people, in important universities who are challenging the orthodoxy.
So, I saw you had Daron Acemoglu on the show. So Daron is goring one of the sacred cows of economics, which is that all [inaudible 00:27:20] change is good. That’s very important work, and he’s a very important figure, and that will really help. And I think other people are changing too, and think… I mean, Danny [inaudible 00:27:31]’s work on trade, and how the so-called gains for trade are tiny compared with the enormous amount of disruptions that are done. People have identified Charlie Schultz as one of the great apostles of efficiency, and that is another ox that’s being pretty seriously gored. So, I think I’m… At my age, I’m 78 years old, I’m not about to change the field, but I mean, I can perhaps exert some influence as an elder, but I think there are young people picking these things up.
Nick Hanauer:
Yeah, for sure.
David Goldstein:
Do you think it can be fixed, or is it something that the orthodoxy needs to be torn down and replaced?
Sir Angus Deaton:
Well, I don’t think it needs to be torn down. It just needs to be ignored.
Nick Hanauer:
Oh, okay.
David Goldstein:
Oh, golly.
Sir Angus Deaton:
Well, economics is, if you talk to some of the philosophers of science, some of whom worked I’ve with, who are interested in economics, they will point out the fact that economics has multiple models, many of which contradict one another. And so, it’s like you go into a well-stocked store, in which there are many models there, and you can pick and choose which ones you want to look at, the ones you want to use for a particular problem, and the fact that they’re mutually inconsistent with one another is not really that important, provided you are choosing correctly. And so, I think that the fact that these things will change really does make a difference. I mean, after all, I mean, Greg Mankiw taught 101 at Harvard, or Ec One or whatever, it’s Ec 10 I guess is what it’s called [inaudible 00:29:14].
David Goldstein:
Ec 10, yeah.
Sir Angus Deaton:
And then they decided, the students protested to the point, and now it’s Jason Ferman, and…
Nick Hanauer:
It’s like one inch better.
Sir Angus Deaton:
Yeah, well [inaudible 00:29:25].
David Goldstein:
Yeah, and using Mankiw’s book.
Sir Angus Deaton:
It’s a lot better. It may not be where you and I would choose to make it go, but it’s a lot better than it was. And that process, I think will… That’s progress. And sometimes progress is pretty incremental.
Nick Hanauer:
Yeah.
David Goldstein:
So I want a definitive answer on the titles of the final two chapters of the book, which are, Did Economists Break the Economy? And, Is Economic Failure a Failure of Economics? Yes or no?
Sir Angus Deaton:
Yeah, I think so. But they don’t have sole responsibility for breaking the economy, and that’s the story that runs through the book, right? It’s a combination of bad economics who were prepared, and a lot of money. And when you put those two things together, you can do a lot of harm.
Nick Hanauer:
Yeah. If you had… We always ask in our interviews, a benevolent dictator question. I guess one form of it would be, if you had to do your career over again, would you do anything differently?
Sir Angus Deaton:
I don’t know. That’s not a benevolent dictator question. And one of the things you tell your children is that decision you were about to make is not as important as you think it is, because once you’re on the other side of it, you’ll have no idea what it would’ve been like had you done something different. So, I’ve had a good time, I’ve learned a lot, and I’ve had a lot of recognition for what I do, and I wouldn’t undo that. But I hope that maybe the next generation, as I’ve been talking about, will help move the profession in a somewhat different direction.
Nick Hanauer:
So, if you were benevolent-
David Goldstein:
Let’s get to, yeah. The actual benevolent dictator question.
Nick Hanauer:
If you were a benevolent dictator, and had controls over the levers of policy, knowing what you know about economics-
David Goldstein:
And knowing what you know about economics in America, the title of your book.
Nick Hanauer:
Yeah. What would you do?
Sir Angus Deaton:
I’d abolish all the laws that make it hard to unionize.
Nick Hanauer:
Okay.
David Goldstein:
So countervailing power.
Sir Angus Deaton:
Yes, let’s have some countervailing power back again. I think that would be the single most important change that we could have. And we’d have to do it soon, because otherwise, I think it’s in your title. They’re going to come for us with pitchforks.
Nick Hanauer:
Yeah, yeah, yeah. Yeah. No. Okay. It’s a good answer.
David Goldstein:
Are you encouraged by what you’re seeing with the UAW strikes, and the attitudes of the UAW?
Sir Angus Deaton:
I am, and I’m encouraged. We all like to see our work having some effect, and the work that Anne and I have done on Deaths of Despair, has I think, moved people, so that Janet Yellen has been a huge supporter of our work since it first came out, and talks about it frequently. I think that brings us great pleasure.
Nick Hanauer:
Yeah. Well, and the Biden administration has broken with the last 40 years of neoliberal economic policy in a really profound way, and I think you can take some credit for that.
Sir Angus Deaton:
Well, thank you. I wasn’t going to say that, but I’m very encouraged by that. The question of course is just whether it’s green shoots that are about to be sunk under an avalanche of money, or whether it really will rekindle a new future, and let’s hope for the latter.
Nick Hanauer:
And our final question is, why do you do this work?
Sir Angus Deaton:
Don’t know, you probably asked my therapist that, not that I have a therapist, but just [inaudible 00:33:05] very deep. I mean, I grew up pretty poor. We worried about money a lot until quite late in life, even after I was by myself. So, I’ve always had an understanding of that end of things, I think. I was never desperately poor, but this sense of worrying about money all the time is something that’s very, very bad for people. And I wanted to understand how that came about, and I wanted to understand what makes people tick. And so, a lot of the early work I did, which is very mathematical, very mainstream, and so on, was still was about that. And the two people who’ve had the most influence on me were Richard Stone, who I talk about in the book, and he was one of the great measurers of the 20th century. He was interested in collecting data, describing what was going on, and the other was Amartya Sen, who I’ve known almost as long, and has always had that sort of moral compass as part of why we do economics.
Nick Hanauer:
Yeah, definitely. One of our heroes.
Sir Angus Deaton:
Should be. I’m glad to hear.
Nick Hanauer:
Well, Angus, we can’t thank you enough for coming on our show. We’re huge fans of your work. We’re just really thrilled to get to talk to you, and we wish you all the best in your future endeavors. We think you still will change the profession. We give you more credit for that.
Sir Angus Deaton:
Well, I think the thing that worries us most about the work we’re doing now is this sense that many people seem to believe there’s no real crisis at all, and that it’s just an opioid crisis, or we just got our numbers wrong, and basically America’s pretty sounds, and they’re jumping up down celebrating how well the American economy is doing relative to Europe, while people are dying in droves.
Nick Hanauer:
Yeah, yeah. Well, sir, thank you so much for being with us.
Sir Angus Deaton:
Thank you.
Nick Hanauer:
Yeah, Goldy, I was really hoping that Angus would give us some really wise advice about how to be… It was a stretch, an overreach in order to get some more clarity about what we do, and how we do it. I think it is a-
David Goldstein:
But he did.
Nick Hanauer:
Yeah.
David Goldstein:
He simplified it, which is countervailing power. We need more of that, and that’s where unions come in.
Nick Hanauer:
Yeah. I just have to ask you, so if you were Angus, and I asked you that question, would your answer have been the same?
David Goldstein:
No, probably not. Largely because takes me much longer to drill down to core principles. I tried to get there, but when I think about his answer, what he’s essentially saying is that when you create the conditions for countervailing power, it works organically in the market.
Nick Hanauer:
As a first principle, he’s either right, or damn near right, correct?
David Goldstein:
Right. The thing is, it’s really simple to do. It’s not complicated. What you do is you make it a hell of a lot easier for workers to organize. You support organized labor, you take away all the restrictions that we’ve built out over the years, and then you allow organized labor. You allow workers to organize, to build their own power to countervail the power of employers. And you get good things from that. You don’t have to overthink it. We’ve talked about this a lot, Nick, that what we have in our economy is a grotesque power imbalance, that it is inherent to markets operating unfettered.
And you can go all the way back to Adam Smith and see that observation, and it runs through classical economics, and it actually runs through much of what became neoclassical economics. You see it in Galbraith, you see it in Keynes, and there are different ways of enabling and exercising countervailing power. But the simplest, and the one with the best historical support is organized labor. You see it throughout history, that conditions only improved when workers were allowed to organize. The capitalism was not good for the vast majority of people, until workers were able to organize, which by the way, was illegal for the first century of capitalism.
Nick Hanauer:
Yeah, it’s true. It’s true.
David Goldstein:
I think, yeah, you were hoping, and I was hoping for a more detailed prescription, but I think, what again, the wisdom of that answer is that he understands… And if you read the book, you understand how complicated the politics is, and how much money there is on the side of-
Nick Hanauer:
Capital.
David Goldstein:
Capital.
Nick Hanauer:
That’s not surprising.
David Goldstein:
Again-
Nick Hanauer:
There’s a lot of capital on the side of capital.
David Goldstein:
Right. And so this is a very simple solution. It’s not the only thing you need to do, but it would go a long way. And again, we brought it up near the end. You see it with the UAW strikes. And by the way, how important just political leadership is, how roundly criticized President Biden was for allegedly violating norms by joining striking auto workers-
Nick Hanauer:
Unbelievable, yeah.
David Goldstein:
On the picket line, and that’s all he did, was show up there and side with them. That’s all he did. And a few weeks later, you see the strike being settled first Ford, then Stellantis, now GM, with these big victories for the UAW. And to the UAW leadership’s credit, they’re not stopping there, because they understand if they get these big contract concessions out of the big three, you’re just going to… And that’s all you do, and you don’t use that as a step towards organizing Daimler, Benz, and Toyota, and Honda, and Kia, and everybody else building cars here, then you’re just going to shift production to the so-called right to work states, and to non-unionized plants.
So, this is one step. You get this contract, and now you go to auto workers elsewhere and say, “You could have this too. Let’s organize and join together.” And that’s important. And it’s big, what’s happening now. And he’s right, these may just be green shoots that are smothered in the collapse of our democracy. That could come in the next couple of years, but hopefully they’re not.
Nick Hanauer:
Yeah.
David Goldstein:
Yeah. I’ve got one other takeaway from this, and that is to point out in the book, by the way, his first chapter starts with the minimum wage. And he-
Nick Hanauer:
I know, so great.
David Goldstein:
… He talks about the $15 wage fight in Seattle. And we’ve repeated that before, the Buchanan quote, which is one of my favorite quotes of all time. Buchanan, by the way, also a Nobel laureate, which is a cautionary tale about Nobel Laureates.
Nick Hanauer:
Yeah, yeah, yeah. Half the Nobel Laureates in economics were total shit bags.
David Goldstein:
Right. But it’s really important when it comes to the credibility of mainstream macroeconomics in particular, and how mathematized it’s become. When Card and Krueger did that initial study on minimum wage differences in New Jersey and Pennsylvania, this difference in different study and found that in fact employment increased faster in New Jersey, where they raised the minimum wage than it did in Pennsylvania, and they were roundly criticized. And you could understand back then in the ’90s where it’s just core to orthodox theory that if you raise the price of something, people will buy less of it. So, if you raise the minimum wage, employers will hire fewer people. And they were the first to really have some study. And you know how these things work. There’s methodological issues all the time, not just in economics, but in all the social sciences, and even the hard sciences.
But it’s been decades. It’s been decades, and the math has become more sophisticated. The data has become more detailed, and decade after decade, this finding is confirmed. And yet, decades later, only about half of economists accept these results. There’s all this empirical data, and all of this good science, all of this good math, and these mainstream economists who, when I criticize their work, I’m often told, “Well, you just don’t understand the math.” Which is true. I don’t understand the math. I’ll admit that. I don’t understand the math. I can’t do it. But, they understand the math that’s telling them they’re wrong, and only half of economists will accept these results, and I think that speaks very poorly to the profession.
Nick Hanauer:
Yeah. Absolutely. And distinguishes it from, if I may say so, a real science, in many ways, where there are controversies in physics at the bleeding edge of string theory, and cosmology, and so on and so forth. But the simplest propositions, like force equals mass times acceleration, not controversial.
David Goldstein:
Right. And the other thing about science is it’s not a science if it can’t be proven wrong. That’s a religion.
Nick Hanauer:
Yeah. Well, how cool to have Angus on, and it’s a cool book, and it’s in the show notes.
David Goldstein:
It’s in the show notes again, Economics in America: An Immigrant Economist Explores the Land of Inequality. I mentioned to Angus, before we started recording, I listened to the audiobook, and I admit this, I listen, most of the books I read are audiobooks. It’s the only way I can get through all this stuff, and he reads it himself. Job well done, but also something I hadn’t heard in one of these books before. There’s outtakes, which provide a lot of insight, and it’s just kind of fun to hear how an audiobook is made, different from the actual just writing it, the reading of it. So, highly recommend it. Links are in the show notes. You can buy this book at your local independent bookstore, or the nameless giant monopolist, if that is what is most convenient for you.
Speaker 4:
Pitchfork Economics is produced by Civic Ventures. If you like the show, make sure to subscribe, rate and review us wherever you get your podcasts. Find us on Twitter and Facebook at Civic Action, and Nick Hanauer, follow our writing on Medium at Civic Skunk Works, and peek behind the podcast scenes on Instagram @pitchforkeconomics. As always, from our team at Civic Ventures, thanks for listening. See you next week.