Book Review: A Wide-Angle View of Inequality-Arora
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Bibliographic details
- Authors: VIVEK ARORA
- Published: September 1, 2023
Overview
- Title reviewed: ECONOMICS IN AMERICA: An Immigrant Economist Explores the Land of Inequality by Angus Deaton.
- Publication details as presented: Princeton University Press, Princeton, NJ, 2023, 280 pp., $24.95.
- Review author: VIVEK ARORA, deputy director in the IMF’s Middle East and Central Asia Department.
- Review metadata shown: F&D Magazine; A Wide-Angle View of Inequality; September 2023; Credit: Adobe Stock / Matt Gush; Less than a minute(0 words) Read.
- Context: Angus Deaton is described as having moved to the United States in the 1980s and winning the 2015 Nobel Prize.
Major findings and themes
- Central concern:
- Rising inequality in incomes.
- A widening gulf between “elites” and the general population.
- Worsening social outcomes among those left behind by globalization, policy, and technological advancement, including rising mortality among less-educated workers (previously characterized as “deaths of despair” in work with Anne Case).
- Inadequate attention to climate change viewed as a form of inequality because it neglects the welfare of future generations.
- Broader welfare lens:
- Deaton argues for widening the lens of economics beyond income and wealth to include meaningful work, family, and community, following Adam Smith’s intent.
- Economists should balance focus on efficiency with more attention to equity and government’s potential role in addressing inequality.
- Market structure and competition:
- Emphasis on Kenneth Arrow’s notion that markets must be competitive—not merely “free”—to deliver socially acceptable outcomes.
- Where monopolies or monopsonies exist, market outcomes can artificially raise prices or reduce wages, penalizing certain segments of the population.
- Adjustment frictions:
- Real-world adjustment to shocks is harder than policy discourse often assumes.
- Educational and racial inequality are highlighted as stark features of the social landscape.
- Displaced workers face barriers from college degree requirements and prohibitive housing costs in large cities.
- The social safety net is described as frayed, increasing hardship for the relatively poor and less educated.
- Health care and pensions:
- Health care market impediments include asymmetric information about prices and procedures, which impede market competition and lead to high health care inequality, high prices, and relatively low quality compared with other rich countries.
- Pensions: Deaton favors communal over individual financing and provision of pensions because market risks are high, most people lack the wherewithal to manage those risks, and miscalculation or bad luck can have catastrophic consequences.
- Global and domestic poverty:
- Governments should pay attention to poverty at home due to obligations to citizens who pay taxes, work, and serve.
- Poverty abroad matters, but aid is not seen as a durable solution.
Policy recommendations and prescriptions
- Pre-distribution focus:
- Urges policymakers to focus not just on redistribution but on “pre-distribution” factors—education and health—that influence how markets determine income distribution before taxes and transfers.
- Labor market policy:
- In some circumstances, higher minimum wages can boost low-income workers’ well-being without reducing employment.
- Government roles:
- Government intervention is needed to reduce health care costs and poverty and to ensure more reliable retirement benefits.
- Communal approaches to pensions are preferred over individual market-based provision.
- Market regulation:
- Ensure markets are competitive (not merely “free”) to prevent monopolies/monopsonies from producing socially unacceptable outcomes.
Criticisms and limitations noted in the review
- Some criticisms of economics in Deaton’s account may be sweeping and could overlook intellectual and policy flexibility developed during and after the global financial crisis, including actions by the IMF under then-economic counselor Olivier Blanchard.
- Deaton does not see aid as a durable solution to poverty abroad.
Tone and assessment
- The reviewer finds the book informative given its wide range of subjects, compelling given Deaton’s authority and experience, and enjoyable due to Deaton’s flair for writing.
Source: IMF F&D Magazine book review by Vivek Arora (September 2023).
Content in this bundle
- A Wide-Angle View of Inequality