Rethinking Economics or Rethinking My Economics
Source details
- Canonical URL
- Rethinking Economics or Rethinking My Economics
Other formats
Bibliographic details
- Authors: Angus Deaton
- Published: March 5, 2024
Overview
- Author: ANGUS DEATON
- Publication: F&D Magazine
- Date: March 2024
- Main thesis: Established economic thought has important achievements but displays serious contemporary failings; questioning and revising one’s views as circumstances evolve is valuable.
- Tone: Personal reflection by a long-practicing economist, identifying broad methodological, ethical, and institutional weaknesses in mainstream economics.
Major critiques of contemporary economics
- Power
- Emphasis on free, competitive markets and exogenous technical change distracts from the role of power in:
- setting prices and wages,
- choosing the direction of technical change,
- influencing politics and changing rules.
- Without analysis of power, understanding inequality or much else in modern capitalism is difficult.
- Philosophy and ethics
- Economists have largely stopped thinking about ethics and what constitutes human well-being.
- Welfare economics has "long since vanished from the curriculum."
- Practitioners often default to income-based utilitarianism and equate well-being with money or consumption, neglecting relationships and community.
- Efficiency is valorized over other ends; social justice can become an afterthought.
- Quotation of historical actors: Keynes’ problem of economics is to reconcile economic efficiency, social justice, and individual liberty.
- Empirical methods
- The credibility revolution (randomized controlled trials, differences in differences, regression discontinuity designs) corrected previous inferential excesses but:
- tends to focus on local effects,
- draws attention away from slow-acting mechanisms with long and variable lags,
- may underappreciate historically contingent, multidirectional causal stories that historians often better identify.
- Humility
- Economists are often too sure of their conclusions.
- Powerful tools require assumptions not valid in all circumstances; acknowledging competing accounts is necessary.
Second thoughts: revising prior positions
- Unions and labor power
- Initial view: unions were nuisances that reduced efficiency.
- Revised view:
- Large corporations have too much power over working conditions, wages, and political decisions.
- Decline of unions contributed to falling wage share, widening gap between executives and workers, community destruction, and rising populism.
- Unions once raised wages for members and nonmembers and were a form of social capital and political power.
- Unions should be part of decisions about artificial intelligence; direction of technical change depends on who has power (citing Daron Acemoglu and Simon Johnson).
- Trade and globalization
- Increased skepticism about benefits of free trade for American workers.
- Skepticism about the claim that globalization was responsible for the vast reduction in global poverty over the past 30 years.
- Belief that reduction in poverty in India had little to do with world trade.
- Argument that China’s poverty reduction could have occurred with less harm to rich-country workers if China had saved less of its national income, allowing more manufacturing growth to be absorbed at home.
- Ethical reconsideration: prior readiness to accept harm to domestic workers as a price for global poverty reduction is no longer defended; additional obligations to fellow citizens exist.
- Immigration
- Former near-consensus view that immigration to the US benefits migrants with little cost to domestic low-skilled workers is now questioned.
- Econometric designs favoring short-term outcomes may miss longer-term effects.
- Historical evidence over the past century and a half shows:
- Inequality was high when America was open,
- Inequality was much lower when borders were closed,
- Inequality rose again post Hart-Celler (the Immigration and Nationality Act of 1965) as the fraction of foreign-born people rose back to Gilded Age levels.
- Plausible claim: the Great Migration of millions of African Americans to Northern factories might not have occurred if factory owners could hire preferred European migrants.
Methodological and intellectual prescriptions
- Incorporate power into economic analysis to better understand prices, wages, technical change, and political influence.
- Reintegrate philosophy, ethics, and welfare considerations into economics curricula and practice; avoid reducing well-being to income or consumption.
- Balance emphasis on credible causal identification with attention to slow-moving, historically contingent mechanisms; engage with historical methods.
- Foster humility about model assumptions and the limits of economic tools; recognize and weigh competing accounts.
- Engage more with philosophers, historians, and sociologists; suggest mutual benefits from interdisciplinary exchange.
Notable factual points and identifiers
- Reference period for global poverty reduction claim: the past 30 years.
- Historical legislative reference: Hart-Celler (the Immigration and Nationality Act of 1965).
- Nobel recognition: Angus Deaton is the 2015 recipient of the Nobel Memorial Prize in Economic Sciences.
- Institutional affiliation: Dwight D. Eisenhower Professor of Economics and International Affairs, Emeritus, at the Princeton School of Public and International Affairs and the Economics Department at Princeton University.
Rethinking My Economics by Angus Deaton, F&D Magazine, March 2024.
Content in this bundle
- Rethinking My Economics