Angus Deaton, a native of Scotland (born 1945), migrated from the UK to the USA in the early 1980s. In 2015, he was awarded the Nobel Prize in Economics for his work on consumption, poverty, and welfare. The book describes his personal and professional experiences in the USA after his arrival. It has chapters on the minimum wage, healthcare, poverty, inequality, retirement and pensions, the way economists work, and his experience with the Nobel Prize. The final two chapters ask whether it was economists who broke the economy, and whether economic failure was not, in fact, a failure of economics.

Chapter 1 is about a question that is seemingly very simple, because it has only two clear variables: Does an increase of the minimum wage lead to a decrease in employment? If this was the case, a policy aimed at improving the lives of low-level workers by raising their income would, in fact, harm them, because many of these workers would lose their jobs since employers will not accept cuts in their profits. This was the position of orthodox mainstream economics when, in 1994/1995, David Card and Alan B. Krueger published a study based on a comparison of what really happened (meaning: existing outside economic theory at that time) in fast-food restaurants in New Jersey (which modestly raised its minimum wage) and Pennsylvania (which did not). The result was “that modest increases in the minimum wage have little or no effect on the numbers of low-wage workers that are employed” (p. 7). This conclusion earned the authors what nowadays would be called a “shitstorm” (my word) among economists and business lobbying groups. Nevertheless, Card received part of the 2021 Nobel Prize in Economics (Krueger committed suicide in 2019).

            “After many years, the debate on the minimum wage has lost none of its relevance or capacity to divide and upset” (p. 10). Not least, in the field of economics, it indicated a move away from “theory-based modeling” (p. 11) to more evidence-based approaches of enquiry. Deaton also questions why it should be assumed that causal relations should apply uniformly, when the phenomena that are being investigated occur under different circumstances and are conditioned in different ways. When, for example, competitive markets do not exist, the situation is “more like a class struggle in which labor fights over the surplus. If workers have difficulty moving, they are open to predation by powerful employers” (p. 14; Deaton seems to assume that workers, as a factor in the economic process, should, in principle, be ready geographically to move to others economic environments—mobility!—if they want to improve their situation). As for the academic discipline of economics, Deaton criticizes that it privileges the perspective of capital over labor, emphasizes efficiency over equity, and ignores the existence of power differentials. In this sense, the widespread acceptance of economics [not least in policymaking circles, M.N.] “bears some responsibility for the diminishing fortunes of workers” (p. 17; the disastrous effects of neoliberal economic theory and practice spring to mind right away).

Chapter 2 is much less about the economics of the US health care system, but more about the complexities (and failures) of the US’ political order’s policy-making system. It starts with the stark statement, “To an immigrant from a wealthy country anywhere in the world, the American healthcare system is a shock” (p. 18), even though 20% of the national income is spent on it. “American healthcare does a poor job for the part of health care for which it can be reasonably held responsible, especially among the nonelderly” (ibid.). It needs to be noted that these statements do not concern the social system of medicine, but the administrative system that was produced by the policies devised by the political system, including the advice by economists and an army of lobbyists in Washington who promote the interests of hospitals, doctors, insurance companies, and the producers of medicines and medical apparatuses. The situation of the US health care system is so bad that it is only half-jokingly when Deaton suggests, “Or we could give every person in America the Swiss healthcare system, with its five more years of life expectancy, together with an annual check for $3,000” (p. 19). Regarding lobbyists, the author notes that while politicians are in theory representatives of the people, in practice, their election campaigns are paid for from donations by lobbyists, so that policy decisions do not necessarily concern the public interest, but rather the interests of the respective group that the lobbyists work for. In this context, Deaton has this to say on “Obamacare”: “The triumph of Obamacare was that it brought coverage to millions of previously uninsured people. Its tragedy was that all the providers and insurers had to be bought off, and so it did nothing to control the outrageous costs that are crippling the American economy” (p. 30). The money spent on healthcare enriches those people involved in that industry, while making it impossible to spend the budget for other necessary public goods (education and infrastructure spring to mind). The author still wonders how “amazingly few dollars from the industry can buy them so much influence in a Congress that is addicted to money” (p. 32).

            To readers from Europe, it may come as a surprise that the concept of “insurance” is not well understood in the US. On the one hand side, the “market fundamentalists” decry the “moral hazard” that would supposedly lead to an overloading of the system if insured people would make use of it more often. On the other hand, however, the principle of insurance cannot be realized when “adverse selection” takes place, which means that healthy people opt out of becoming members of an insurance scheme, because they would not expect that they had an immediate need for medical treatment. Consequently, mainly sick people would remain members, causing the insurance costs to go up, and the coverage to go down. “We need to have everyone in the scheme, sick and healthy alike, or it [the insurance system] will self-destruct. Yet, it has been hard to explain that idea to the public” (p. 34).

            Of course, things only got worse with the advent of the “Madmen in Authority” (originally coined by John Maynard Keynes). One of their key goals since 2017 was the abolition of Obamacare. These people “shared a genuine intellectual belief that healthcare would be better with more market and less government …” (p. 38). Deaton notes the existence of a mindset that Ayn Rand had popularized among Republicans (in favor of freedom and capitalism, and indifference to inequality). Race was also a factor, “There is a long-standing unwillingness among the white population to pay for healthcare for African Americans, an unwillingness that is exploited by unscrupulous politicians” (ibid.). Other wider questions concern whether health care is merely a commodity like an iPhone, or a flat-screen TV, or whether it is rather collective societal responsibility. Policymakers who value individual choice, markets, and deregulation must negate the second perspective. Political culture also comes into play as a policymaking factor: “Americans are less egalitarian than Europeans and are much less trusting of government” (p. 40). Deaton’s key witness here is Kenneth J. Arrow, who, in 1963, had published the famous article “Uncertainty and the welfare economics of medical care” (American Economic Review, 53 [5]:941-973).

            The final section of this chapter is headlined “Crime, Punishment, and Tobacco.” Its starting point is the suits brought against misleading information by the producers of opioid painkillers, then (2022) still at the beginning, while, one may add, the “opioid crisis” had cost hundreds of thousands of lives in the US already. Deaton uses this issue for a comparative look at the anti-tobacco lawsuits in 1998. His treatment includes the tricky question of how aware people are of their own decisions, especially their possible negative health consequences. Should economists deviate from their standard view that people make rational decisions? What if people know the risks but find pleasure in doing it, nevertheless? “Even if smokers are indeed making poor choices, paternalism is an assault on freedom that is deeply troubling” (p. 45). Besides, this paternalism is not present in the attempts “toward the legalization of marijuana, an arguably more dangerous substance” (p. 42).

Chapter 3 is less about poverty as such and more about the ineffectiveness of foreign aid designed to eradicate poverty in developing countries. Deaton asks, “How should we think about poverty and deprivation at home when there is so much poverty and deprivation elsewhere in the world? Or vice versa” (p. 50). The proponents of “cosmopolitan prioritarianism,” the issue is clear—the needs of poor people worldwide must have priority since, by comparison, citizens in the USA are much better off. This idea dominates organizations like the World Bank or USAID. “Even so, I have come to believe that it needs to be seriously rethought for both ethical and practical reasons” (ibid.). One reason is that those people who promote the mainstream globalist view are elite members of US society who have benefited from economic globalization. Those who lost their jobs in the US because factories were offshored to countries where workers would get lower wages might have very different views. “Less well-educated Americans have seen little or no improvement in their material circumstances for more than fifty years” (p. 52). The “bottom end of the American labor market is a brutal environment for many” (ibid.). “America’s prided equality of opportunity is less real than it used to be, if indeed it ever was real. Towns and cities that have lost their factories to globalization have also lost their taxes and find it hard to maintain the schools that are the escape routes for the next generation” (ibid.). Deaton finds it quite understandable that US workers develop resentment towards a new world economic order to which their children have no access (his wife and him, in 2020, published a book entitled, Deaths of Despair and the Future of Capitalism, Princeton University Press). Moreover, US workers are not citizens of the world. Their citizenship is linked to the USA. In this context, they have rights and responsibilities. The beneficiaries of foreign aid “do not vote in American elections, while American workers do” (p. 55). Deaton points out that people in positions of power in the USA must do a better job in responding to the needs of their constituents “before those wearing MAGA hats come for us with pitchforks” (ibid.).

            This section is followed by references to the discourse about development aid in the USA. It ends with the view that most on-the-ground development projects fail (which happens to be an insight I was taught while studying in the sociology of development section at Bielefeld University in around 1983). A major reason is said to be the “absence of state capacity” (p. 63). From this angle, the actual problem is not poverty but the inability of the political systems in those countries to devise and execute poverty reduction policies.  Unfortunately, “foreign aid often undermines the development of local state capacity” (p. 64). If the rulers in those countries are responsible to anyone, it is not their own people, but their donors. “Aid undermines what poor people need most: an effective government that works with them for today and tomorrow” (p. 65). That sounds commonsensical enough. However, Deaton does not give any indication whether he had any idea about how this ideal goal could be achieved. “We cannot help the poor by making their already-weak governments weaker still” (ibid.). Therefore, aid should be reduced, though the path towards turning weak into strong political systems remains in the dark.

            The last section in this chapter deals with the Trump administration’s tricks used to reduce the number of poor people in the USA. The section is appropriately headlined, “Poverty Became Fake News” (ibid.). In his conclusion, he attacks “cosmopolitan prioritarianism” again. Deaton also includes a brief mention of one major cause of the increase of poverty in the USA when he notes that donations to the US poor in Davos “would certainly draw attention to those corporate behaviors that were contributing to that domestic poverty” (p. 70).

Chapter 4 is about aspects of measuring the Consumer Price Index (CPI). The CPI tells us the rate of inflation. Since many federal entitlements (such as Social Security) are linked to the CPI, it partly determines how much money people get from the state. In terms of quantity, “About a third of the federal budget is linked to the CPI” (p. 75). The official poverty line also depends on the CPI. It is important to note that it measures average prices, not the cost of living. Obviously, the CPI has considerable political importance (as has the GDP), because the success of many state policies is measured by it. Consumers, such as me, can easily relate to the CPI too. If a small pack of cooked rice suddenly costs 12 baht and not 10 as before, or when a pack of caramel popcorn becomes smaller while the price remains unchanged, then, consumers can easily relate to the officially announced CPI figures.

            Deaton spends some pages on attempts to revise the CPI downwards, and attempt that happened in 1996. In that context, two aspects of perennial importance played important roles, namely substitution measures (consumers can switch to cheaper goods when prices go up) and increases in the quality of goods. However, the management of the latter has remained elusive. To the author, the 1996 controversy “was essentially an attempt to cook the books in a way that would reduce the cost of entitlement spending…” (p. 80). Moreover, if the downward correction had been accepted, “the well-documented stagnation of working-class real wages since the early 1970s becomes a statistical illusion” (ibid.).

            One of the key problems of a centralized CPI in a country as huge and diverse as the USA is that prices differ from place to place, while the “poverty line is the same everywhere” (p. 81). This is quite different to the European Community (EU), where Eurostat calculates prices and living standards in its member states. Transfers of funds among the EU member states then depend on the results of these measurements. In the USA, attempts have been made to calculate “regional prices parities (RPP)” (p. 83). This also includes not merely looking at absolute household incomes but also looking at “real income” (italics in the original), which refers to how much consumers can buy with their income given the price levels in the locality in which they live. Perhaps, consumers could simply move to another place where life would be more affordable to them (again, as mentioned above, this is the idea that if the conditions at one locality are unaffordable, then it is not the task to make those conditions affordable, but it is the task of the people to move to another locality). Deaton notes that “Spatial mobility … has slowed, with many fewer people moving in recent years than once was the case, in part because house prices have become unaffordable in many of the most attractive cities” (p. 85). He adds, “We need to be careful not to assume that people can costlessly move from one place to another” (ibid.). In any case, regarding income inequality, “The big differences in income between people are within places—between poor and rich people in New York or Miami—not between places” (p. 86; italics in the original).

            The above-mentioned attempts to include spatial difference in price levels and the cost of living in the official CPI and the poverty line, though they can be measured to an extent, have not found their way into the official centralized approach. This remains “something that is unlikely to change any time soon” (p. 86).

Chapter 5 is about monetary, or material, inequality.When Deaton was still in Cambridge (UK), inequality was a big issue (key figures included Amartya Sen, Anthony Atkinson, and James Mirlees). After moving to the USA, he discovered that the economists working at the University of Chicago—Milton Freedman, George Stigler, James Buchanan, and Robert Lucas—were “following a line that was diametrically opposed” (p. 91) to what he had encountered in the UK. Friedman thought that diminishing inequality “would penalize virtue and reward vice,” stressing “equality of opportunity” instead (p. 94). Free markets “would produce both freedom and equality” (ibid.). Yet, reality turned out to be different altogether. “In retrospect it is not surprising that free markets, or at least free markets with a government that permits and encourages rent seeking by the rich, should produce not equality but an extractive elite that predates on the population at large. Utopian rhetoric about freedom has led to an unjust social dystopia, not for the first time. Free markets with rent seekers are not the same as competitive markets; indeed, they are often exactly the opposite” (p. 95; first italics are mine, the second is in the original). From the Chicago point of view, money was almost the only thing that had value, and, unfortunately, many economists adopted this perspective.

            From the early 2000s onwards, however, the issue of inequality returned to the policymaking discourse. Deaton mentions the “seminal work by Piketty and Saez” (“Income inequality in the United States, 1913-1998,” The Quarterly Journal of Economics, 118 [1], 1-41, 2003). Subsequently, it was shown that countries with high levels of income inequality “were also those with the least equality of opportunity … income inequality seems to get in the way of opportunity. It is easy to see why this might be the case if the rich hoard the best opportunities for themselves and their children” (p. 99).

            Yet, one also needed to distinguish between inequality and unfairness, “and it is unfairness more than inequality that is currently disaffecting many Americans. When people see the economy and politics as rigged against them, populism and even violence can seem warranted (p. 103; my italics). One important element in this is that big companies and their associations can press politics—via fast lobbying networks and millions of Dollars as “donations” to the campaign coffers of politicians—to give them special privileges, so that “relatively rich executives and shareholders are effectively stealing from everyone else” (p. 105). The author adds, “Wealthy minorities often block public provision of entitlement-like pensions or of healthcare because they do not want to pay taxes for them and do not need them for themselves or their families” (ibid.).

            Deaton also refers to the seemingly strange phenomenon that the national income of the United States has more than doubled during the past five decades, while the real wages of workers have stagnated. Thus, he asks, “Why has the growing general prosperity not been shared among working people” (p. 106). An important answer brings us back to the shape of America’s political system, its operations, and how politicians are financed. Deaton concludes this chapter with a warning: “With the right policies, there is a chance that capitalist democracy can work better for everyone, not just for the wealthy … There are terrible risks ahead if we continue to run an economy that is organized to let a minority prey upon the majority. Taxing those who prosper is good and is certainly part of what needs to be done. But stopping the predation is the key” (p. 109).

To this reader, what Deaton writes sounds only too familiar. Unfortunately, I can also not see any prospect that the American political system would improve to a level that it could be able to adopt policies that could perhaps avert the presently visible as well as future risks for this country and its people. It must also be kept in mind that the USA is the most important actor in the present geopolitical struggle between the Western bloc and an arising block centered on China and partly Russia. From this perspective, what the developing new world order needs is a resilient democratic USA, and not the “unjust social dystopia” that Deaton has identified.

In chapter 6, Deaton considers “Inequality beyond money,” mainly the role of race. “When society refuses to assign dignity and respect to some of its members, not everyone is a full citizen” (p. 110). Because the “ambivalence” towards “swearing allegiance to the United States and its leadership,” he became a citizen only after Obama had become president in 2012 (p. 113 and 115). As for race, the emphasis is on Black Americans; native Americans are absent from this chapter. Deaton is especially unsettled about the fact that, in 2020, life expectancy of black men was seven years less than that of white men, while the figure was 4.5 years for women. Doctors are mostly white, and their level of expertise is lower in hospitals that are in areas whose population is mostly black. Since health is mostly related to race, it makes little sense to use income generating policies as a solution. Interestingly, Deaton notes that “America does not have a European welfare state because of its history of race and racism” (p. 119; he refers to Alesina and Glaser. 2004. Fighting poverty in the USA and Europe: A world of difference. Oxford University Press). Simply put, white Americans have been unwilling to pay taxes for black people. One could surely assume that this view is a bit simplistic, without denying that race was a factor. The author finds it “truly appalling (…) that the United States has a health care system that is run on something close to apartheid lines, with separate but very unequal facilities for Black people and white people” (p. 120). Moreover, educational inequality has become an important variable. This mainly refers to the question what influence college degrees have on health (on both Blacks and Whites). “Educational inequalities in health are becoming more important relative to racial inequality in health” (p. 121).

Deaton then turns to the issue of climate change, which he treats as inequality between currently living people and future generations. “Leaving an unlivable planet to unborn generations would be an act of great selfishness” (ibid.). In practice, this boils down to the question of whether present generations should make sacrifices that could benefit future generations, and not merely themselves. Strangely, many US economists do not see this as an ethical question but rather frame it in terms of cost and benefit. Introducing ethical values is a form of paternalism to them. Their considerations are about “market behavior that reveals how ordinary people think about these matters” (p. 125). From this perspective, what “ordinary people” think about climate change seems to be the guiding light, assuming that the actors’ economic and ethical orientations are identical, and that market behavior is based on a sort of well-considered and future-oriented rationality.

            The brief final section of this chapter is headlined “Meritocracy and Inequality.” Deaton used to be positive about meritocracy because it eliminated inherited privileges. Unfortunately, however, it has led to new inequalities. Reference is made to Michael Sandel’s famous book on The Tyranny of Merit (2020). From Deaton’s point of view, it is true that “opportunity restricted to talent is no more equal than opportunity restricted by class or by wealth. But the clever ones know how to turn themselves into a permanent elite that functions much like the old one, although, in the new dispensation, those excluded are led to blame not the accident of their birth or their parents’ failure to get rich but what they are told is their own lack of talent” (p. 132).

Chapter 7 is about “Retirement, Pensions and the Stock Market.” To a reader like me, a German used to a state-administered compulsory pension insurance scheme, some points discussed in this chapter seem a bit exotic. For example, the idea that I would have an individual account of my contributions and are supposed to make the best out of them by playing on the stock market seems bizarre. However, a sentence on the first page also applies to me personally: “If the young go to sleep at the mention of pensions, the elderly sometimes like awake worrying about them” (p. 133). One key philosophical difference is whether pensions should be a matter of “collective responsibility” or be based on an “individual approach” (p. 145) relying on the differential capacity of people to invest their retirement funds on the stock market. Though there has been a “general societal move toward individualism and belief in markets (p. 149), the USA’s main retirement scheme, Social Security, does so far not invest in the stock market.

            Deaton spends several pages on the pension situation of university professors, tenure, adjuncts (who have become the backbone of teaching at US universities), and endowments. His fundamental position seems to be that “pensions need to be collectively managed so that unscrupulous but relatively well-informed politicians and managers are not able to shift risk to poorly informed individuals whose material wellbeing in retirement is often barely adequate” (p. 156).

Chapter 8 has the title “Economists at Work,” which includes bemoaning the uniformity that has taken over the discipline of economics, due to being dominated by the curricula of a small number of influential graduate programs in the United States. This also concerns the flow of personnel, such as students and faculty. “The flow of inward talent is much larger than the outward flow” (p. 181). In one section, Deaton mentions Alfred Marshall (1842-1924), who had written the influential book Principles of Economics. “Recent accounts suggest that Marshall borrowed extensively from and relied profoundly on Mary Marshall, née Mary Paley” (1850-1944) (p. 167). She was among the first group of female students of economics at Cambridge University. And although she had passed all exams, she was denied a degree, because she was a woman. Her own husband, though at the beginning supportive of her studies, later strongly wrote against admitting women to higher education. According to one author, Maynard Keynes asked, ‘Why did Alfred make a slave of this woman, and not a colleague?’” (p. 168).

            At the end of this chapter, Deaton briefly characterizes four economists, now deceased, who had an influence on him, namely Esra Bennathan (a refugee from Nazi German), Hans Binswanger-Mkhize (a Swiss economist specializing in agricultural economics), John DiNardo, and British economist Anthony Atkinson. He mostly worked on inequality (see Inequality: What Can Be Done, Harvard University Press, 2015), and Deaton wonders why there had not been a similar economist in the United States, speculating that, with such a person, “inequality would have been a public issue earlier, and it is not fanciful to imagine that it might even have grown less rapidly” (p. 196). Atkinson also advocated for technical innovations being “vetted for social desirability before being licensed” (p. 195). Deaton is skeptical, because of who would do that vetting. One might also add how one could determine “social desirability” over time. “Yet, … I predict that this idea will become widely discussed in the near future” (p. 195). It is easy to see that this prediction will come true—with people like Elon Musk turning Twitter into “X” and massively influencing public opinion, or regarding the current debate about Artificial Intelligence regarding whether this is a socially desirable technological innovation or not, and in which way could it be regulated so that it would not be socially harmful.

Chapter 9. The title of this chapter says it all, “Nobel and Nobel Laureates.”

Chapter 10 about the question of “Did Economists Break the Economy?” has two parts (I am not sure whether the chapter’s content has much to do with its title). The first part starts with the financial crisis of 2008 (which economists did not foresee), while the second part returns to Deaton’s concern with the “death of despair.” Regarding the financial crisis, the economic stimulus package devised by the Obama administration was at the center of those believing in the self-healing capacity of markets (the “market fundamentalists”) and those who—in the tradition of John Meynard Keynes—assign an active role to government spending. The author bemoans that, during the 80 years that macroeconomics had been developed, it had had so little influence on policymaking. Worse still, macroeconomics as an academic discipline has “nothing like the coherent understanding of the aggregate economy that would support sound policymaking” (p. 217). This includes the failed idea that measures aimed at economic development as promoted by international organizations could, in fact, set developing countries on the path to development.

            As mentioned above, the most important variable concerning inequality and the “death of despair” is whether a person has a B.A. degree or not. This gap started opening around 1970. It was accompanied by a decline of unions that had played a variety of roles in the everyday lives of non-degree workers. “Unions are now almost nonexistent in the private sector” (p. 220). Traditional marriage patterns also declined substantively. The opioid crisis that cost hundreds of thousands of Americans their lives was largely due to an interplay between big pharma and politicians. “Money speaks very loudly in American politics, and when it comes to choosing between the interest of your voter and campaign finance, the selection is often the latter” (p. 221f.). Deaton assigns much of the responsibility for this overall situation to the government. And he states, “We might wonder how it is that rich European countries which subsidize or even have free prescription drugs, have managed to avoid opioid epidemics. Perhaps it is because those countries’ governments do not allow opioids to be used outside of hospitals or clinical settings. Nor are pharma companies allowed to send their representatives to doctors’ offices to persuade them to prescribe opioids …” (p. 224).

            Deaton puts an important conclusion of this entire situation into the introduction of this chapter when he notes, “One can perhaps understand why so many are unfazed by a threat to democracy as it is currently working, given that it has long failed to work for them [the great majority of American workers without college degrees]” (p. 212).

Chapter 11: “Finale: Is Economic Failure a Failure of Economics?” From Deaton’s perspective, the “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” (p. 233). In mainstream economics, there is the assumption that all economic changes that lead to job losses will only have short-term consequences, because people will find other jobs soon. Thus, one gets both a gain in economic advancement and social acceptability. “It is this strategy that is currently broken and has been broken for several decades” (p. 236). A person made unemployed cannot just move to a better job, because it will probably require a college education, and because moving is often not an option since house prices and rents are too high elsewhere. This mainstream view also reduces human welfare to monetary income (this is a similar view to what I once learned at vocational school: people are mere “production factors”). Yet, “people care about their jobs, about the meaning they get from them, and, even more, about their families, their children, and their communities. They care about leading a dignified life in a functioning community in a democratic society, all things that are being lost for people without a college degree” (p. 237). There need to be rules and policies that consider these issues. Unfortunately, “American democratic capitalism as currently practiced is serving only a minority of the population, and the majority is not happy with either democracy or capitalism” (p. 229). Thus, one should not be surprised that the affected Americans “have turned to populism and given up on a political system that is not helping them” (ibid). For the discipline of economics, all this means that it must pay attention to what other disciplines, such as sociology, say about what happens in American society. Above all, economists ought to return to the philosophical foundations of their academic discipline: “We need to abandon our sole fixation on money as a measure of human wellbeing” (p. 237).