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Puzzling About Inequality

Everyone loves to talk about America, especially non-Americans. Whether it is Hector St. John de Crèvecoeur’s Letter from an American Farmer (1782), Alexis de Tocqueville’s Democracy in America (1835/1840), or Jacques Maritain’s Reflections on America (1958), there has never been a shortage of foreign observers who think that the rest of the world has much to learn, for better and worse, from America. Such individuals also often provide insights into the American experience that may escape most native-born Americans.

That’s one reason why Americans still turn to Tocqueville’s great tome. Despite spending only 286 days in the New World, he identified specific dynamics at work in the young republic that remain important reference points today. One of the most important was the way in which the specific concerns for equality given expression by American democracy had unleashed a range of political trends, not all of which bodes well for the United States and its experiment in freedom.

The issue of equality features significantly in Sir Angus Deaton’s Economics in America: An Immigrant Economist Explores the Land of Inequality. Unlike Tocqueville, the Scottish-born 2015 Nobel laureate in economics moved to the United States in 1983 and eventually became a citizen. But in this work of autobiography combined with a significant amount of political and economic commentary, a focus on equality—or, more precisely, inequality—is omnipresent. For Deaton, America is the land of inequality, and this simultaneously fascinates, excites, and horrifies him.

A New—and Complicated—World

After being educated in Scotland and England, Deaton migrated to America (specifically, Princeton University in New Jersey) in search, like millions before him, of opportunity. Deaton was immediately struck by the sheer scope offered to migrants with drive and ambition, but also the scale of the inequalities of all kinds which, he claims, “are wider in America than almost anywhere else on earth.”

Much depends on what kinds of inequalities Deaton has in mind. One of the most basic forms of equality is that expressed by the rule of law, and I am quite sure that the state of the rule of law in the United States, despite observable declines, is much healthier than in virtually every African country, the Middle East, most of Latin America, China, Russia, and a good many Western countries.

Deaton does not regard inequality per se as inherently problematic. Indeed, he specifies that some inequalities are good insofar as they reflect, for instance, the fact that some people have seized opportunities and taken risks that others have not. That said, much of Deaton’s book reflects the fact that all sorts of inequalities have bothered him throughout his long career and continue to do so.

Whether the issue was healthcare, poverty, the stock market, or pensions, Deaton found himself, in his words, “returning again and again . . . to inequality in its many manifestations” throughout his career. His primary method for doing so as an economist has been through the medium of data and numbers. Deaton wanted to know how data “can and should shape our understanding, but also . . . how data affect politics and how politics affect data.”

That word, “politics,” reminds us that economics is, more so than most disciplines, involved with the shaping of policy. Deaton has never held a policymaking position but knows plenty of economists who have. He has much to say throughout this book about how modern economics and economists have contributed, for better and worse, to the formation of policy, as well as the role of politics in shaping their policy recommendations.

Economists and Politics

Deaton entertains no illusions of grandeur about his chosen profession. He is decidedly not a fan of “celebrity economists,” and illustrates how going down that particular path invariably results in a concern for good research and truth more generally disappearing. Deaton also observes how quickly the findings of economists, no matter how carefully circumscribed and cautiously worded, are often hijacked by the political class, both left and right, to make claims which go far beyond the parameters of the original study. He also laments how much the science of measuring economic phenomena like inflation and unemployment has become a political football.

Still, Deaton also believes that plenty of economists have avoided the political trap and have helped make incremental improvements to our understanding of the effectiveness or otherwise of different policies. He stressed, for example, that there is far more willingness on the part of economists to recognize the limits of foreign aid, how much of it is siphoned off by corrupt post-colonial elites, the degree to which it undermines the development of local state capacity, as well as how much damage to developing countries was inflicted by programs like Jeffrey Sachs’ Millennium Villages Project (MVP).

It is, however, striking how long it took for measured criticism of foreign aid to become acceptable. Deaton rightly credits the development economist William Easterly for playing a major role in bringing about this new state of affairs in important books like The Elusive Quest For Growth: Economists’ Adventures and Misadventures in the Tropics (2001). But it should be noted that another development economist, P. T. Bauer, had argued decades earlier in books like The Economics of Under-Developed Countries (1957) and Equality, the Third World, and Economic Delusion (1981) that foreign aid and a host of post-war Western policies designed to facilitate economic growth in developing countries were at best ineffectual, if not positively harmful. This made Bauer a pariah in many policy, political, and academic circles. But by the late-1990s, Bauer’s ideas had displaced the orthodoxies that had hitherto reigned in development economics. That helped clear the way for figures like Easterly to recast the entire debate.

Economic technique matters. It even has its own beauty. But the normative ends served by the method are even more important.

This is one of several instances where I found myself wondering if Deaton underestimated the degree to which mainstream economics—like all academic disciplines—is prone to being captured by established thinking that deals with challenges by ostracizing those who challenge the consensus. To be fair, Deaton states in several places that the fora in which ideas about economic theory and policy are discussed and debated need to be more open to positions that are considered heterodox, even odd.

The challenge, of course, is how to distinguish between cranks (of which there is never a shortage) peddling pet theories seeking to explain everything wrong with the world, and those whose conclusions are resisted because they call into question entire careers built on theory and research whose veracity is now seriously in doubt. The line is not always easy to draw.

Looking for the Standard

Deaton’s reflections are not limited to commentary on past and present controversies about economics and economic policy. They also contain insights into topics ranging from the respective merits of teaching methods in American and European universities to the politics surrounding the Nobel Prize in Economics and how it affects, for good and ill, the lives and productivity of awardees.

The topic of inequality in America looms, however, everywhere throughout this book, from beginning to end. Deaton’s particular tale is one of growing inequalities in America, especially from the 1970s onwards in the wake of what he argues was the beginning of growing gaps in income inequalities. This, Deaton maintains, has had significant flow-over effects into other spheres.

This question of income inequality and its significance for factors like wages has long been a point of dispute among economists and policymakers. Much of the division lines up on the left-right, progressive-conservative spectrum. Deaton does not fit easily into either group. His focus on inequality reflects many of the emphases which shaped the teaching and study of economics after World War II, especially in the wake of the Keynesian Revolution which itself was influenced by similar concerns. Yet Deaton is distrustful of simplistic answers, and details where he thinks economists, whether of the interventionist or free market variety, go wrong in their analysis of, and responses to, inequality and its different expressions.

Given, however, Deaton’s focus on inequality, I was puzzled by the absence of a specified normative standpoint by which he assesses the justice or otherwise of varying forms of inequality. Simply stating that one or more inequalities exist between two or more groups isn’t enough to indicate whether they are just or unjust. Issues of merit, need, rights, process, intentionality, and obligations require attention.

Deaton tends to circle around these matters without directly coming to grips with them in the way that other Nobel economists like Amartya Sen and F. A. Hayek certainly did. Deaton notes that reducing economic inequalities was a major preoccupation of the Cambridge School of economics, and contrasts this with the Chicago school. The latter was, he argues, far less focused on such matters, with Milton Friedman in particular seeing many inequalities as natural or merited because they resulted from hard work. Deaton doesn’t, however, offer many thoughts about the normative rightness or wrongness of the respective foci of these schools or the philosophical apparatus underlying them.

The importance of a normative standard isn’t limited to determining the ends that economists seek to realize. Deaton himself points out that concerns about the rightness or wrongness of a given condition or set of circumstances tend to drive the questions that economists ask and how they interpret data. The politics of data, he stresses, is crucial for the whole enterprise of economics. And underneath politics are basic philosophical questions, the answers to which tell us a great deal about why someone prioritizes liberty over equality (or vice versa), or why an economist seems more concerned about inequalities associated with racial discrimination than, say, the injustices intrinsic to crony capitalism.

An Older Economics

Many social scientists, including economists, either refer to normative issues as “beyond their pay grade” or relegate them to the realm of the hopelessly subjective. At the end of his long career, Deaton concludes that this is no longer an option for economists.

In several places, he expresses skepticism about viewing human welfare primarily in terms of “money” (which I take to be shorthand for material wealth). Above all, Deaton states in the last sentence of his book, economists “need to spend more time with philosophers, recapturing the philosophical territory that used to be central to economics.” Big questions should drive economists’ study of data, but Deaton wants to see those questions go far beyond supply and demand.

With that, Deaton points back to an older way of doing economics, one that he identifies with Adam Smith, but which also characterized the mindset of economists as different as Hayek and John Maynard Keynes. It’s not a question of abandoning modern economics’ empirical dimension and technical achievements, let alone trying to turn economics into a sub-branch of ethics. Rather, it’s about economists knowing and being able to publicly defend the ultimate reasons why they do what they do, and why everyone else should care.

Economic technique matters. It even has its own beauty. But the normative ends served by the method are even more important. At some point, the economist-technician must be complimented by the economist-philosopher. Angus Deaton could not have chosen a better parting message.

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