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Published by EH.Net (December 2023).

Angus Deaton. Economics in America: An Immigrant Economist Explores the Land of Inequality. Princeton: Princeton University Press. vii + 271 pp. $24.95 (hardcover), ISBN 978-069124762.

Reviewed for EH.Net by Robert A. Margo, Boston University and the National Bureau of Economic Research.

 

Winners of the Nobel Prize are incentivized to write books for the public. Angus Deaton is the 2015 winner of the Nobel Prize in Economics, and his ground-breaking work on poverty, inequality, health, and economic development connects with economic history in myriad ways. His new book offers reflections on life in the United States, seen through the lens of an immigrant, Deaton himself. Some of these reflections are familiar, others shocking (which is not to say I disagree with Deaton) – the book is deeply honest, unflinching, and insightful. Deaton is currently a Senior Scholar and the Dwight D. Eisenhower Professor of Economics and International Affairs Emeritus at Princeton’s School of International Affairs and its Department of Economics.

Economics in America is divided into a preface, followed by eleven chapters. The Preface lays out the multiple, overlapping goals of the book, one of which is to offer Deaton’s thoughts on American inequality; another is to illuminate how professional economics works (or doesn’t). Deaton is from Scotland and knew of (Scottish) poverty in his youth. He came to the United States believing he “could do better” (p. ix) for himself and his family, arriving at Princeton in the early 1980s. The book has little to say specifically about the town of Princeton; having been there many times, I would not say it is a microcosm of the country, but soul-crushing poverty can be found in nearby Trenton. Overall, the book has a dark tone, because Deaton believes that the US has become a darker, less open society since his arrival.

The book’s material derives from dispatches that Deaton wrote for the Royal Economic Society over roughly twenty-five years, assembled by content into chapters and revised for the present purposes. Chapter 1 is about Card and Krueger’s study of the minimum wage. He recounts the original study, why it happened when it did, the conservative backlash, and the subsequent diffusion of Card and Krueger’s empirical methods. That Deaton views the backlash as modern economics’ not-so-finest hour is obvious (as is his sadness over Krueger’s untimely death) but he is, in the end, happy that our discipline is far more empirical today than when he started at Princeton. Chapter 2 is about health care. Deaton recounts his personal (borderline crazy but, alas, typical) encounter with the US health care system (a hip replacement) while he was still employed at Princeton – the ridiculous complexity, the impossibility of being an informed consumer. He talks about Obamacare, what it accomplished and what is did not; Ken Arrow and adverse selection; and how tobacco lawsuits produced money that was spent on reducing property taxes.

Chapter 3 is about poverty at hand and elsewhere. We in the United States pay taxes to the federal government and have certain obligations to each other as citizens, which argues for some “home bias” in redistribution. William Easterly, Joe Stiglitz, and Jeff Sachs make appearances; the first two survive Deaton’s critical eye, Sachs not so much. Deaton reminds us that for all the good it can do (and does), foreign aid can undermine state capacity in poor countries. By global poverty standards, there are many more poor people in the US than in other rich countries. Chapter 4 ruminates on the political economy of the consumer price index versus a (true) cost of living index. Deaton’s discussion (pp. 82-85) of geographic price variation within the US as well as the responsiveness of internal migration to spatial differences in real income will have American economic historians shaking their heads in agreement (and, this reviewer hopes, spur some new work on long-run trends in the same).

The next two chapters are about monetary (Chapter 5) and non-monetary inequality (Chapter 6). Monetary inequality is just what it sounds like and non-monetary is everything else mainly, as Deaton puts it (p. 110), associated with “ethically irrelevant characteristics such as race, ethnicity, and gender.” Chapter 5 notes the influence of the Chicago school on whether monetary inequality is something that economists should care about (no) versus Deaton’s experience in the UK (yes). He claims that the Chicago view is still pervasive within academic economics; my own experience is, far less than when I was a graduate student in the early 1980s. Chapter 6 includes a discussion of current racial differences in wealth and health that, in my opinion, would have benefitted from a (much) longer-term perspective (as in, from the end of the Civil War). Climate change makes an appearance, as the (premier) example of inequality between generations. Deaton argues that economists have done too little work on it, in part because of questionable arguments that a positive discount rate (let alone a discount rate close to the market rate) reduces the incentive for the present generation to care, for any given level of intergenerational altruism. Chapter 7 is about pensions and retirement, mainly Deaton’s uneasiness with the shift from collective (defined benefit) to individual (defined contribution) risk management of retirement income.

Chapters 8 through 11 are about the economics profession, and the Nobel. Chapter 8 briefly describes the economic histories of the American Economic Association and the Royal Economic Society. The lay reader is given a feel for what it is like to attend an economics conference and navigate the journal review process; like many in the profession (including this reviewer), Deaton laments the overwhelming influence of publication in the “top five” on academic careers. There are brief, affectionate portraits of economists who are no longer with us that Deaton admires, such as Anthony Atkinson and John DiNardo. Chapter 9 describes the “treatment effects” of winning a Nobel; here, Deaton’s observations match well what I’ve observed second-hand. Chapter 10 asks “Did Economists Break the Economy” to which Deaton answers a qualified “Yes” in the case of the financial crisis — too much enthusiasm for free markets and not enough Keynes — and in blaming “deaths of despair” on the victims rather than on “pharmaceutical companies and their enablers in Congress” (p. 226).

Economics in America is not a monograph, and it would be churlish to review (or read) it as one. The economic historian in me wanted Deaton’s thoughts on Robert Fogel’s Nobel-prize winning work on nutrition and long run health, which he surely has and which are not offered. I am more sanguine about modern macroeconomics and the profession’s ability to learn from mistakes. But these are minor points. Economics in America is a beautiful read, easily done in an afternoon, and one that will stay in the mind much, much longer.

 

Robert Margo is Professor of Economics at Boston University and a Research Associate of the National Bureau of Economic Research. A former president of the Economic History Association, his current research is on historical industrialization.

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