Angus Deaton on inequality: ‘The war on poverty has become a war on the poor’
"When Angus Deaton arrived in the US four decades ago, he imagined he had something to say about economic inequality and how to tackle it that Americans might want to hear. Instead, the great economic minds of the time told him to shut up.
The Scottish-born winner of the 2015 Nobel prize for economics struggled at first to understand why there was so little interest in a subject most European economists regarded as a central concern of post-war policies to reduce poverty and build more equitable societies.
But, as Deaton describes in his unsparing new book, Economics in America: An Immigrant Economist Explores the Land of Inequality, he soon realized he had run headlong into the libertarian monetarists of the Chicago School of Economics, and they were driving US policy.
“There is this very strong libertarian belief that inequality is not a proper area of study for economists,” Deaton said. “Even if you were to worry about inequality, it would be best if you just kept quiet and lived with it.”
Deaton persevered, building a reputation as a contrarian for scrutinising the prevailing orthodoxy that an unfettered free market would deliver greater economic equality and individual liberty, and that government intervention and regulation would undermine both.
The result, said Deaton, is a predatory brand of capitalism in the US that enriches corporations and the wealthy at the expense of working people, deepens inequality of wealth and opportunity, and – although many Americans will deny it – is fuelling the rise of a class system. As he picks the system apart, Deaton zeros in on the evident absurdities of claims about the purity of the market.
“If you need an ambulance, you are not in the best position to find the best service or to bargain over prices; instead, you are helpless and the perfect victim for a predator,” he writes.
The results are clear. Real wages have stagnated since 1980 while productivity has more than doubled and the rich cream off the profits. The top 10% of US families now own 76% of wealth. The bottom 50% own just 1%.
The time has come, Deaton argues, for economists to get back to serving society.
“The discipline has become unmoored from its proper basis, which is the study of human welfare,” he writes.
At Cambridge University in the 1960s, Deaton was steeped in the Keynesian economics of government intervention and a regulated market. In 1983 he took up a teaching post at Princeton University in New Jersey. Ronald Reagan was in the White House and the Chicago school held sway over policy in both the US and Margaret Thatcher’s Britain.
But while the impact of Thatcherism came under intense scrutiny in the UK, Deaton was surprised to discover that American economists were largely uninterested in how their policies contributed to inequality and hardship.
Deaton ticks off the list of Nobel prizes for economics won by the Chicago school’s highly regarded minds, including Milton Friedman and George Stigler. He does not doubt what he calls their intellectual contributions.
“Yet it is hard to imagine a body of work more antithetical to worrying about inequality,” he writes.
“A friend of mine, a conservative economist and deeply religious man, is fond of saying that ‘fair’ is a four-letter word that should be expunged from economics.”
Deaton is now a US citizen married to an equally renowned economist, Anne Case, who coined the term “deaths of despair” to describe the rising mortality rate among white, middle-aged Americans driven by drugs, alcohol and suicide, a unique phenomenon in wealthy countries. The pair’s shocking findings drew the attention of then president Barack Obama and his successor, Donald Trump.
Deaton and Case then wrote a bestselling book, Deaths of Despair and the Future of Capitalism, highlighting the part played in reducing life expectancy by the US economic system, not least its lamentable health industry in killing staggering numbers of patients while making Americans poorer.
For all of Deaton’s attachment to his adopted country, his British roots and upbringing cut the lens through which he interprets the US.
Deaton said that at the heart of the difference between his two nations lay opposing views about the role of government. After growing up in a country where many people saw the state as “a friend in times of trouble”, he was appalled to hear his American colleagues proclaim that “government is theft”.
“The very strong view in Chicago was that government attempts to do anything to fix the economy would make it worse. They really believed that the government couldn’t do anything at all, which is absurd,” he said.
Deaton said the evidence of successful state intervention is all around even if governments sometimes get it wrong. He points to president Lyndon B Johnson’s 1964 “war on poverty” legislation pulling families back from the breadline and improving lives with food stamps, housing assistance, and federal health care for the poor and elderly among other programmes.
Deaton said rightwing politicians and economists fixed the numbers so they could claim, in the words of Ronald Reagan, that in the war on poverty, poverty won. Official income statistics left out welfare payments so those receiving them often appeared to still be living below the poverty line when, by other measures, government assistance demonstrably helped.
“No matter how successful antipoverty cash transfer policies are at reducing want, their effects do not show up in the official counts,” Deaton writes.
“The way poverty is measured means that the war on poverty can never be won by sending money to the poor. This statistical stupidity, which the politics makes so hard to fix, is a constant source of mischief and misunderstanding.”
Put another way, Deaton said, “the war on poverty has become a war on the poor”.
The Trump administration went in the other direction. Deaton said it lowered the poverty line to the point where millions no longer fell below it, and then claimed that poverty was no longer an issue. But the move was made with the same intent of greatly reducing access to welfare payments and discrediting state intervention.
Still, in time Deaton came to understand why Americans might be suspicious of government given that in the US it often works “not to protect ordinary people but to help rich predators make ordinary people poorer”. The political system, he said, is “more responsive to the needs of those who finance it than to its constituents”.
Deaton argues that the system is also increasingly weighted by access to higher education, itself increasingly an industry that drives students deeply into debt.
“One of the things I’ve learned is that the deepest forms of inequality are these sort of personal inequalities where not everyone is given equal value as a human being. That is the inequality that is so worrisome in America today. To have high status, to have access to good jobs, to be recognised valuable member of society, you have to have a four year college degree,” he said.
“If you don’t, you don’t get to be part of the ruling class. You don’t get to participate in Congress. You don’t have access to good jobs. You’re excluded from the successful cities, and all sorts of bad stuff happens to you.”
Deaton said that what’s emerged from decades of a system weighted in favour of those with a university education is a form of class system, although Americans do not like to talk about it in those terms.
“That’s the difference with Britain where they always knew they had a class system. But the US has moved to something much closer to the class system,” he said.
Deaton describes his own hopes as an immigrant 40 years ago as tempered by the corruption of the American economy and its politics to an extent that threaten democracy. But he is not without hope.
“With the right policies, there is a chance that capitalist democracy can work better for everyone, not just the wealthy. We do not need to abolish capitalism or selectively nationalize the means of production. But we do need to put the power of competition back in the service of the middle and working classes. There are terrible risks ahead if we continue to run an economy that is organized to let a minority prey on the majority,” he writes.
Deaton sees other reasons for hope too. He said the huge popularity of the French economist Thomas Piketty’s book, Capital in the Twenty-First Century, which argued that inequality is a feature not an accidental consequence of capitalism that can be offset only through government intervention, is evidence that even in the US the debate is shifting.
“I think Americans are learning that there’s more than one way of thinking about the world,” he said. “One of the things I’ve been arguing is that all of us, including me, were a little too ready to accept the arguments that markets can solve things. We should have known.”
Deaton also spies change because of immigrants like him. He points to the Turkish-born American, Daron Acemoglu, as an economist whose thinking is changing the discipline.
“Seventy per cent of economics PhDs in the US are non-American. I compare it to the Jews who came to America between the wars who completely changed physics. Economics is being completely changed by this influx. I’m not the only immigrant who comes in to America and finds it a strange place,” he said.
This article was amended on 7 October 2023. An earlier version misspelled the names of Thomas Piketty and Daron Acemoglu.
Economics in America: An Immigrant Economist Explores the Land of Inequality is published 3 October by Princeton University Press"