## Rethinking Economics or Rethinking My Economics

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**Canonical URL:** [Rethinking Economics or Rethinking My Economics](https://www.imf.org/en/publications/fandd/issues/2024/03/symposium-rethinking-economics-angus-deaton)

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## Bibliographic details
- Authors: Angus Deaton
- Published: March 5, 2024

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### 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.*

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## Content in this bundle

- **Rethinking My Economics**
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_Source: https://www.imf.org/en/publications/fandd/issues/2024/03/symposium-rethinking-economics-angus-deaton_