Angus Deaton: Rethinking My Economics

Introduction

Sir Angus Deaton, the Nobel Prize-winning economist, has long been recognized for his contributions to development economics, health economics, and the study of inequality. However, in recent years, Deaton has engaged in a profound reevaluation of his own economic beliefs, questioning some of the foundational assumptions of mainstream economics. His intellectual journey reflects broader debates within the discipline about globalization, inequality, and the role of economics in shaping public policy.

This post explores Deaton's evolving perspective, focusing on his critiques of conventional economic wisdom, his concerns about rising inequality, his skepticism toward globalization, and his reflections on the limitations of economics as a discipline. By examining Deaton's self-reassessment, we gain insight into the challenges facing modern economics and the need for a more nuanced understanding of human well-being.

1. From Conventional Economics to Critical Reflection

Deaton's early work was firmly rooted in mainstream economic thought, emphasizing quantitative analysis, utility maximization, and market efficiency. His contributions to demand analysis, consumer behavior, and poverty measurement were widely respected, earning him the 2015 Nobel Prize in Economics for his "analysis of consumption, poverty, and welfare."

However, in recent years, Deaton has become increasingly critical of some of the core tenets of economics. In his 2023 book (co-authored with Anne Case), Deaths of Despair and the Future of Capitalism, he highlights how traditional economic models fail to explain the rising mortality rates among working-class Americans. This marked a significant shift in his thinking—from a focus on aggregate economic growth to a deeper concern for distributional justice and human suffering.

Key Turning Points in Deaton's Rethinking:

• The Limits of GDP: Deaton argues that GDP growth alone does not guarantee well-being, particularly when gains are concentrated among the wealthy.
• The Failure of Trickle-Down Economics: He critiques the assumption that economic growth automatically benefits all segments of society.
• The Misguided Faith in Globalization: While he once supported free trade, Deaton now questions whether globalization has disproportionately harmed certain communities.

This intellectual evolution mirrors a broader crisis in economics, where many leading economists—including former proponents of neoliberalism—are reassessing their views in light of rising inequality and political discontent.

2. Inequality and the Crisis of Capitalism

One of Deaton's most significant critiques is his focus on inequality as a fundamental flaw in modern capitalism. While economists traditionally viewed inequality as a temporary byproduct of growth, Deaton now sees it as a systemic threat to democracy and social stability.

The Great Divergence:

• Wealth Concentration: The top 1% have captured a disproportionate share of economic gains, while real wages for the middle and working classes have stagnated.
• Geographic Disparities: Globalization and automation have devastated industrial regions, leading to "deaths of despair" (suicides, drug overdoses, and alcoholism) among displaced workers.
• Policy Failures: Tax cuts for the rich, weakened labor unions, and deregulation have exacerbated inequality.

Deaton argues that economists underestimated the social and political consequences of inequality. Rather than being a mere statistical phenomenon, inequality erodes trust in institutions, fuels populism, and undermines social cohesion.

Case and Deaton's "Deaths of Despair" Thesis:

Their research shows that life expectancy in the U.S. has declined for certain demographics—a trend unseen in other wealthy nations. This phenomenon is concentrated among white, non-college-educated Americans who have been left behind by economic change. Deaton contends that economics must move beyond abstract models and confront the human cost of policy failures.

3. Skepticism Toward Globalization

Deaton was once a supporter of free trade, believing that globalization would lift millions out of poverty. While he acknowledges its benefits for developing countries (particularly China and India), he now questions whether the costs for Western working-class communities were ignored.

The Downsides of Globalization:

• Job Displacement: Manufacturing jobs moved overseas, leaving many workers without viable alternatives.
• Wage Suppression: Competition with low-wage countries depressed earnings for blue-collar workers.
• Cultural Erosion: Communities that relied on industrial jobs experienced social breakdowns, contributing to political polarization.

Deaton does not advocate for full-scale protectionism but calls for a more balanced approach that considers both the winners and losers of globalization. He suggests stronger social safety nets, retraining programs, and policies to revitalize declining regions.

4. The Limits of Economics as a Discipline

Perhaps Deaton's most profound critique is directed at economics itself. He argues that the discipline has become overly reliant on mathematical models, neglecting real-world complexities.

Key Criticisms:

• Overemphasis on Efficiency: Economists often prioritize market efficiency over fairness, ignoring how policies affect different groups.
• Neglect of Power Dynamics: Economics tends to overlook how political and corporate power shapes outcomes.
• Inadequate Measurement of Well-being: GDP and income metrics fail to capture health, happiness, and social stability.

Deaton advocates for a more interdisciplinary approach, incorporating insights from sociology, psychology, and political science. He also stresses the importance of humility—recognizing that economists do not have all the answers.

5. Implications for Policy and the Future of Economics

Deaton's rethinking has significant implications for economic policy:

1. Redistribution Matters: Progressive taxation and social spending are necessary to counteract inequality.
2. Place-Based Policies: Revitalizing declining regions requires targeted investments, not just national aggregates.
3. Rethinking Trade Policy: While trade can be beneficial, policymakers must mitigate its adverse effects on vulnerable workers.
4. Beyond GDP: Well-being should be measured more holistically, incorporating health, education, and community resilience.

His work challenges economists to move beyond technocratic solutions and engage with the moral dimensions of policy.

Conclusion: A More Humane Economics

Angus Deaton's intellectual journey reflects a broader reckoning within economics. His shift from a conventional, growth-focused perspective to a more critical, inequality-aware stance underscores the need for a more humane and inclusive discipline.

While some may argue that Deaton's critiques undermine faith in markets, his real contribution is in pushing economics toward greater realism—recognizing that markets alone cannot solve all societal problems. By rethinking his own assumptions, Deaton invites the profession to do the same, fostering a more just and sustainable economic future.

In an era of rising populism, climate crises, and technological disruption, Deaton's call for a more reflective and socially conscious economics is both timely and necessary. His work serves as a reminder that economics, at its best, should be about improving human lives—not just optimizing abstract models.