The Stagnant Science: Mainstream Economics in America
REVIEW ESSAY
Economics in America:
An Immigrant Economist Explores the Land of Inequality
by Angus Deaton
Princeton University Press, 2023, 271 pages
To state the bias of the reviewer, I do not like the club profiled, with some detachment and flashes of insight and wit, by Angus Deaton in Economics in America, a book organized around economic policy issues and confected from commentaries originally penned over several decades. Deaton, a Scottish immigrant and winner of the Swedish Riksbank’s prize “in memory of Alfred Nobel,” has done more good and less harm than many members of the club. He has done important work on health, wealth, inequality, and, most recently, what he and his wife, Anne Case, also of Princeton University, have termed “deaths of despair.” But he is a member of the economists’ club, and this book, for all of the admirable skepticism it contains, is a member’s account of the club to which he belongs.
As Deaton writes, the club is quite open to membership for those it considers worthy. Its leading personalities come from all class backgrounds—as did Deaton, son of a coal miner—and many in America are immigrants or, in the case of Europeans, people who took degrees at American schools and returned to dominate economics back home. Yet, as Deaton also describes, the top reaches of the profession are heavily guarded. Advancement depends on publication in just five journals, four based in the United States and one in Europe. Of these, two are house organs, of Harvard and Chicago, controlled sometimes for decades by a chief editor, along with his friends and graduate students. Absolute conformity is not enforced. Instead, there is a narrow range of permitted views, ranging from extreme right-wing to what passes in the United States for center-left—but which would have been regarded as pre-Thatcher Tory in the UK from which Deaton came.
Deaton is on the left edge of reputability in economics. He is not a market fundamentalist and regards that position—held by Harvard’s Robert Barro, to take an example he names—with undisguised disrespect. But the same goes for those from within the mainstream who drift a little too far to the left—Joseph Stiglitz, for example, let alone Jeffrey Sachs. As for anyone further afield, so far as Economics in America is concerned, they do not exist. Critiques of mainstream economic methods—chaos, complexity, evolutionary, ecological, feminist, institutional, Marxian, Post-Keynesian, Modern Monetary Theory—make no appearance here. The word “heterodox” appears once, so far as I saw, and is not in the index. Deaton’s own position on the left, like that of his former colleague Paul Krugman, rests on a rigid nonrecognition of any view not sanctioned within the mainstream. And while at the very end he calls, in general terms, for economists to dialogue with philosophers and sociologists, he makes no mention of physicists, biologists, engineers, anthropologists, or any other discipline.
These limitations are not benign. They affect both the topics that are suitable for economists to discuss, and the permitted and excluded questions in each domain. Among suitable topics, Deaton takes up the minimum wage, poverty in the world and in the United States, health care, pensions, the calculation of price indices, and, of course, inequality. Some examples will illustrate how the dominant discourse limits the range of discussion in each domain, while at the same time often inflating the importance of economists to the policy outcome.
Profiles in Misdirection
The tale of the minimum wage debate is known to all economists as Deaton tells it. In brief, Alan Krueger and David Card, in an epoch-making book called Myth and Measurement, established that raising the minimum wage does not (necessarily) cause job loss. Card and Krueger developed a natural experiment, comparing fast-food restaurants in Philadelphia and neighboring Camden, New Jersey, before and after New Jersey raised its minimum wage. They found, contrary to the textbook model, that employment in the Camden restaurants rose, relative to those across the state line. A main reason—as Deaton does not explain—was that quits, turnover, and vacancies declined, incidentally saving training costs. Given better pay, people stayed with their jobs longer. There was no change in technology; fast-food restaurants are, after all, just cookie-cutter micro-factories operating on strict protocols to ensure a standard product and phytosanitary compliance.
Were the economists persuaded by this simple story? Not really. As Deaton says, about half accepted it mostly as an instance of a “monopsony” model, introduced as “imperfect competition” by Joan Robinson in 1933. The other half, aided by the fast-food lobby in some cases, insisted on the standard model of supply and demand. This reviewer remembers Representative Dick Armey (R-TX)—mentioned by Deaton as a former economics professor—telling an interviewer that McDonald’s would surely replace its human dishwashers with machines. That no McDonald’s uses dishes was to Armey a fact either unknown or unimportant.
Card and Krueger were right on the minimum wage. But did they tip the scales? Deaton makes no mention of economist Robert Pollin of UMass-Amherst, a leader in his department, who actually helped unions and activists organize referenda on the issue. He doesn’t mention Ron Unz, a physicist and California activist, disliked by liberals, whose economic arguments helped make a high minimum wage palatable to conservatives. He barely mentions the fast-food workers, whose “Fight for 15” had everything to do with economic justice, with getting off food stamps, and nothing to do with the sandbox of economic theory.
Turning to world poverty and foreign aid, Deaton admires William Easterly, a skeptic of economic methods and development assistance. He excoriates Jeffrey Sachs for a grandiose “big push” approach—the UN Millennium Development Goals—and for failed village experiments in Africa, while mentioning the name of Esther Duflo, champion of randomized controlled trials, with respect but no details. He argues that the true source of declining poverty in the world is “globalization,” lifting millions from destitution in “China, in India, or in Bangladesh.”
Easterly may be right about the incompetence of Western development aid. Sachs may have been overambitious in Africa and at the UN. But what is missing here? There is no discussion, even for contrast, of non-Anglo-American perspectives. Deaton’s take on the eradication of poverty in China, a vast achievement—described recently in this journal—is misleading; it had much to do with internal effort and not so much with the vague, patronizing term “globalization.” There is nothing here about debt crises in Latin America, Africa, and Southeast Asia, a topic on which Sachs cut his teeth early in his career; Deaton simply says, “when Brazil encountered difficulties. . . .” Hardly a word about war; he does mention the arms trade. And finally, on the question of the “big push,” Deaton says nothing about China’s current and ongoing version for Central Asia, Africa, and elsewhere, the Belt and Road Initiative.
Within the United States, Deaton mocks a Trump-era White House study arguing that poverty, as conceived under Lyndon Johnson, has largely been defeated. He claims that U.S. poverty is, in some places, as bad or worse than for people the World Bank denotes as “destitute in India or Ethiopia.” Two oft-cited facts are presented in support. The first is that men with no college degree have seen no gain in real wages since the 1970s; the second is that the “median wage” has also not improved in real terms since then. But what do these facts have to do with destitution? The proportion of men falling into the no-college-degree category has fallen over fifty years, with the composition of that category shifting toward workers from Mexico and Central America who arrive, often alone, to take the low-wage jobs. Meanwhile, there has been a major increase in multi-earner households, and in the earned income tax credit, as well as food stamps. For better or worse, these support consumption and help families escape poverty. There are, of course, homeless people in America and other deeply impoverished groups. It is possible to cite examples, as Deaton does. But a comparison with India or Ethiopia does not hold up.
On health care, much of what Deaton writes about the problems of the U.S. system, as well as its virtues (no queues for hip replacement!) is incontestable. But here, too, he is prone to give professional colleagues too much credit. At one point, he praises a 1963 paper by Kenneth Arrow (“one of the greatest economists of all time”), for proving that health care cannot be delivered efficiently in a private, competitive market. Really? Proving to whom? The British had a private health system. It was bankrupt by the early 1940s. By 1963, the National Health Service had been up and running for fifteen years. It was only a very peculiar sort of economist who might have needed Arrow by then. And of course, such economists do exist—and they continue to exist, notwithstanding the excellence and rigor of Arrow’s proof.
On pensions and the fate of Social Security, Deaton offers a biting account of how mainstream economists, led by Michael Boskin, tried to undercut the program in the 1990s by claiming that the consumer price index overstated the rise in the true cost of living for seniors. He rightly extols the work of Katharine Abraham, then commissioner of labor statistics, and other government professionals in defense of their own integrity against such claims. But he gives only a clause to the political dynamic that decided the issue. President Clinton, backed by many economists, gave repeated signals that he was ready for a compromise to “save Social Security”—by driving it, bit by bit, into the ground. It was not good statisticians who blocked him. It was the Democratic leader in the House, Richard Gephardt (aided, no doubt, at the critical moment by the antics of Miss Monica Lewinsky) who put a stop to it by refusing to play ball. Did Gephardt have economic advisers? Yes, but they were not drawn from the mainstream. And they understood very well that large questions of living standards, poverty, and income distribution were at stake, far more important than the smokescreen issue of the CPI.
Finally, we may take up inequality, a topic Deaton rightly states was long unfashionable among economists, and on which he and I shared a (nonpecuniary) Leontief prize in 2014. Deaton’s lodestars on inequality are the late Anthony Atkinson, a British contemporary, and Thomas Piketty, a Frenchman, whom he credits with having improved inequality metrics by introducing the use of tax records in the United States and around the world. There are many problems with this claim.
One of the biggest is that Piketty asserts (from his measures, widely publicized in a famous graphic), and Deaton accepts, that inequality in America today matches the levels of the pre-Depression Gilded Age. The proposition is absurd. In those years, culminating in 1929, there was no Social Security, no Medicare, Medicaid, Unemployment Insurance, SNAP, housing assistance, practically no thirty-year mortgages, no minimum wage. Life expectancy at birth—a decent metric of general conditions—was more than twenty years less than now. Piketty’s “finding” feeds the notion that none of these things, which may not show up in current income, matter to inequality. But they do, and the United States, for all its faults, is not back at the Gilded Age.
These vignettes show the tendency of mainstream economists to preoccupy themselves with the dimensions of an issue that can be handled within the frameworks of their familiar models, methods, and data. These are rooted in the notions of supply and demand, market equilibrium, efficiency, and in standard statistics that have defined conventional economics for about a century and a half. Economics as political practice or as institutional history plays little role in this thinking. The neglect of such factors—the case with Piketty’s inequality measures and much else—leads toward conclusions that cannot be reconciled with sober common sense.
Club Rules
Given that the country is run by political and financial power, Deaton knows that the constructive influence of mainstream economists on policy is not very great. Back in the 1960s, he tells us, Kenneth Arrow was at the Council of Economic Advisers (as staff, not a member) but played no role in the design of Medicare or Medicaid. Since then, the CEA has mostly lost stature. Sometimes—as in the 1990s under the here‑maligned Stiglitz—it picks a good fight over issues little known to the public. More often, it serves mainly as a career steppingstone for economics professors. And what is the net effect of the presence of the economic mainstream in policy debates, generally speaking? As these pages make clear, if you read them from a certain point of view, it is to lend legitimacy to extreme “free market” views, while muffling those considered too far to the left. Deaton quotes Robert Solow, who wrote that the way to get ahead in economics is to provide a “brilliant argument in favor of an absurd conclusion.” The effect is almost always reactionary, though with a few exceptions, some of them discussed above.
In view of this, what accounts for the enduring grip of mainstream economics on academic prestige and public discourse? The question is not new. John Maynard Keynes in 1936 called it “something of a curiosity and a mystery”:
That [economics] reached conclusions quite different from what the ordinary uninstructed person would expect added, I suppose, to its intellectual prestige. That its teaching, translated into practice, was austere and often unpalatable, lent it virtue. That it was adapted to carry a vast and logical superstructure, gave it beauty. That it could explain much social injustice and apparent cruelty as an inevitable incident in the scheme of progress, and the attempt to change things as likely on the whole to do more harm than good, commended it to authority.
All this remains true, but there are more recent factors. One is the emergence of a gilded ghetto in material and conceptual terms. Deaton gives startling information on the pay and pension possibilities open, in the United States, to mainstream economists, in comparison with any other social discipline. Meanwhile, within academia, the other natural and social sciences have moved forward on evolutionary lines consistent with (among other things) thermodynamic law. Mainstream economics has not; it remains stuck in pre-evolutionary doctrines of equilibrium and optimization, translated into the virtues of markets. This makes cross-disciplinary communication difficult, except in fields like political science and international relations, which economists have colonized with their own views.
Then there is the exhaustion of mainstream theory, on the foundations of which practically no important new work has been done for the past fifty years. In consequence, the ideas of senior economists of the 1940s, ’50s, and ’60s—Kenneth Arrow, Paul Samuelson, Robert Solow, Milton Friedman, and a few successors—continue to dictate the basics, while today’s researchers focus on applications and variations in technique. They apply principles and methods that they have learned not to question. Those who do inquire may sense that there are problems, but it is not safe to say so. To neglect caution in the tombs of saints is to invite silence, ridicule, exile, demotion, or even expulsion from academic life.
So the walls around the mainstream castle grow higher. From the ramparts, the voices of stalwarts ring out, sometimes embellished by the so-called Nobel Prize. So long as they and their epigones control the top jobs and keep the support of donors and university administrators (many of them also mainstream economists), things can, and will, go on as they are.
Economics in America is a story of points made, but punches pulled. Let me add some quibbles. Deaton expresses contempt for populism, as elite circles these days do, using “populism” as a synonym for ignorance and having forgotten the actual Populist Party, whose program was based on popular education. He repeats a 1972 remark by Zhou Enlai, ostensibly on the French Revolution (“too early to tell”)—although the translator, Chas Freeman, has disclosed that Zhou had thought Kissinger’s question was about the uprisings of 1968. He states that the facts of Stiglitz’s Globalization and Its Discontents were poorly checked but gives no examples. He hints, citing a YouTube video and some blogosphere snark, that there may have been a racy aspect to the relationship between Sachs and Angelina Jolie. He snipes at a fellow Econ-Nobelist for teaching at Arizona State, a low-ranking graduate program “according to U.S. News and World Report.” Such comments, sad to say, are very much in the social vein of the economists’ club.
Finally, there is the question of scope. To the modern mainstream economist, Deaton’s coverage will seem very broad—the mark of a Renaissance Man. But compared to the questions facing the world, and those that not long ago were the meat and potatoes of economics, the range is narrow. Deaton knows this and touches lightly on some key issues. On climate, he notes that mainstream economists have barely scratched the surface, mainly concentrating on the question of discount rates, which if high enough drive estimates of the cost of civilizational collapse down toward triviality. He gives the Great Financial Crisis a few pages, but bankers are hardly mentioned, and the word “fraud” does not appear. There is no discussion of full employment policy or job guarantees. Price controls, except in health care, are not mentioned, though they have resurfaced as a hot topic since 2021. The current debates over monetary theory and policy are absent. On the future of the international dollar, there is nothing. On the fate of capitalism as a system, he offers just a few lines. The fault here is not Deaton’s; it lies with the scope of the economists he is writing about.
In his peroration, Deaton writes:
In my own view, a central problem of modern mainstream economics is its limited range and subject matter. The discipline has become unmoored from its proper basis, which is the study of human welfare. . . . We need rules and policies that [take] economists into uncomfortable territory: promoting unions, place-based policies, immigration control, tariffs, job preservation, industrial policy, and the like.
That would be nice. The problem is that the mainstream economists have driven those who focus on these issues out of the profession. Their work is taboo. And the taboo cannot now be broken, except by bringing in a new generation who espouse critical and dissident views. This requires that Keynesians (the real ones), Post-Keynesians, Marxians, institutionalists, ecologists, and other strains from outside the mainstream be heard. And it requires the knowledge of physicists, biologists, geoscientists, and of other branches of social science on a multidisciplinary and equal footing.
But that cannot happen. It would disturb the monopoly of the club.