[How About This Book] Nobel Prize Winner's View on US Economy: 'Awe and Shock'

A Society Where the Ultra-Wealthy and the Poor Coexist
If Opportunities Are Not Utilized, Complete Exclusion Follows

Awe and shock.

Angus Deaton, a Scottish-born American immigrant and emeritus professor at Princeton University's School of Public and International Affairs, expresses the duality he feels about the American economy in this way. Despite being a poor immigrant, he obtained tremendous opportunities at the unparalleled institution of Princeton University and his children also benefit from these advantages. On the other hand, the United States does not support those who cannot enjoy such opportunities or benefits. Observing an American society that thoroughly excludes those who fail to seize opportunities, Professor Deaton uses the term "shock." He points out in his book Good Economics Bad Economics (original title: Economics in America) that the harsh politics that completely exclude those who fail to utilize opportunities is the cause of the severe inequality plaguing American society.

For the past 25 years, Professor Deaton has regularly contributed articles to the Royal Economic Society in the UK, examining both the good and bad aspects of the United States. Good Economics Bad Economics is a book that organizes and refines these contributions.

Professor Deaton was awarded the Nobel Prize in Economics in 2015 for his research on consumption, poverty, and welfare. He showed great interest in income redistribution from a welfare perspective and mainly addresses the issue of inequality in this book. The book carries the subtitle "An Immigrant Economist Explores the Land of Inequality."

Professor Deaton immigrated to the United States in 1983 and points out that American society is darker now than it was then. Various indicators confirm that American society is becoming increasingly unequal. For example, Professor Deaton notes that the material conditions of low-educated Americans have hardly improved. The median real wages of men without a four-year college degree have been on a declining trend since 1970. In the book Deaths of Despair and the Future of Capitalism, co-authored with his wife and colleague, Professor Anne Case of Princeton University, he mentions that deaths from suicide, drug overdose, and alcoholic liver disease?so-called "deaths of despair"?have increased, whereas those with a four-year college degree have not experienced such an increase. While there are absolute wealthy elites like Elon Musk and Jeff Bezos who possess astronomical wealth, millions live in the United States in conditions comparable to or worse than the poor in India or Ethiopia.

[How About This Book] Nobel Prize Winner's View on US Economy: 'Awe and Shock'

Regarding the causes of such inequality, Professor Deaton first points to a problem of perception. Many believe that the reason people who fail to seize opportunities become poor lies with themselves, and therefore it is natural that those who fail to utilize opportunities do not enjoy various benefits because they were already given opportunities. However, Professor Deaton emphasizes that in the United States, there is inequality in the very utilization of opportunities, and even if the cause lies with the individuals who fail to seize them, a safety net for these people is necessary. Unfortunately, he points out that harsh politics that thoroughly exclude those who fail to utilize opportunities prevail in the United States. This harsh politics is also the reason Professor Deaton distinguishes between good economics and bad economics.

Professor Deaton reveals that even outstanding economists often lacked the qualities needed for national governance in politics. For example, he mentions Larry Summers, who served as the U.S. Treasury Secretary from 1999 to 2001. Professor Deaton has known Summers for over 40 years and regards him as an economist unmatched in knowledge and creativity. However, during his tenure as Treasury Secretary, Summers eased regulations on speculative capital flows and Wall Street derivatives, which many criticized. It has since been confirmed that these measures contributed to the Asian financial crisis and the 2008 global financial crisis triggered by the U.S. housing market.

Professor Deaton also argues that general economic growth and prosperity are not shared. The U.S. per capita national income increased by an average of 1.8% annually from 1971 to 2021 and more than doubled in real terms over the past 50 years. However, the real wages of the middle-income group in income distribution have stagnated since 1970, and the real wage level of men without a college degree is even lower than 50 years ago.

The minimum wage issue, which could help address this situation, is always controversial. Professor Deaton points out that as early as the 1980s, his Princeton colleagues David Card and Alan Krueger produced research showing that moderate increases in the minimum wage are not associated with job losses. He criticizes modern mainstream economics for having drifted away from its foundation in the study of human welfare.

Professor Deaton argues that the American economy’s strict emphasis on efficiency differs from the thoughts of Adam Smith, the "father of economics." Adam Smith had a deep interest in social issues, ethics, and philosophy. In this context, Professor Deaton highlights that Keynes stated in his 1931 book Essays in Persuasion that "the political problem of mankind is how to combine economic efficiency, social justice, and individual liberty." Professor Deaton claims that modern economics has overlooked the importance of liberty and justice due to its bias toward efficiency.

In the book, Professor Deaton discusses a variety of topics?from poverty, retirement, and minimum wage to his Nobel Prize?in an engaging and candid manner, relating them to his own experiences and those of people around him. At times, he is quite blunt, which makes it interesting. For example, he harshly criticizes Robert Barro, one of the most cited economists worldwide, calling Barro’s views on government fiscal deficits illogical and stating that the fact Barro is a Harvard professor is clear evidence that macroeconomics has regressed since 1936.