Trump’s unexpected Presidential win appears to have delivered a wake-up call to the economics discipline. At a major industry conference, the annual Allied Social Sciences Associations meeting, a blue-chip panel of four Nobel Prize winners, Angus Deaton, Joe Stiglitz, Roger Myerson and Edmund Phelps, was in surprising agreement that capitalism had become unmoored and in its current form was exacerbating inequality. These may seem like pedestrian observations, but the severity of the critique, , was striking.
No video of the panel is available yet; I hope one is released soon and will post it if/when that happens.
Tellingly, even though the panelists also included a fall in innovation, globalization and secular stagnation as contributing to inequality, the discussion focused on rent-seeking.
Deaton was blistering by the normally judicious standards of the academy. Recall that he and his wife Anne Case performed the landmark study, published at the end of 2015, that showed that the death rate had increased among less educated middle aged whites, due largely to addiction and suicides. Thus the plight of economic losers is more vivid to Deaton than his peers, and he sees the disastrous human cost as a direct result of rent-seeeking and untrammeled monopolies. :
“A lot of the inequality in the U.S. comes from rent seeking. It comes from firms and industry seeking special protection or special favors from the government…To the very considerable extent that inequality is generated by rent seeking, we could sharply reduce inequality itself if rent seeking were to be somehow reduced.”
While some forms of inequality could be linked to progress and innovation, said Deaton, inequality in the U.S. does not stem from creative destruction. “A lot of the inequality in the U.S. is not like this. It comes from rent seeking. It comes from firms and industry seeking special protection or special favors from the government,” he said.
Deaton highlighted a particularly salient example of rent seeking: the American health care system which, he said, “seems optimally designed for rent seeking and very poorly designed to improve people’s health.”
Deaton outflanked Stiglitz on the left. Stiglitz argued that taxes could help reduce inequality, in concert with other policies to curb rent extraction:
“In all areas of economics, the rules of the game are critical—that is emphasized by the fact that similar economics exhibit markedly different patterns of distribution, market income, and after tax and transfers income. This is especially so in an innovation economy, because innovation gives rise to rents—both from IPR and monopoly power. Who receives those rents is a matter of policy, and changes in the IPR regime have led to greater rents without having any effects on the pace of innovation,” said Stigltz.
Deaton begged to differ:
“I don’t think that rent seeking, which is incredibly profitable, is very sensitive to taxes at all. I don’t think taxes are a good way of stopping rent seeking. People should deal with rent seeking by stopping rent seeking, not by taxing the rich,” he said.
Deaton is clearly outraged by how opiate manufacturers (meaning Purdue Pharma) have profited by killing poor whites:
“There are around 200 thousand people who have died from the opioid epidemic, were victims of iatrogenic medicine and disease caused by the medical profession, or from drugs that should not have been prescribed for chronic pain but were pushed by pharmaceutical companies, whose owners have become enormously rich from these opioids,” said Deaton, who later advocated for a single-payer health care system in the U.S., saying: “I am a great believer in the market, but I think we need a single-payer health care system. I just don’t see any other sensible way to address it in this country.”
Mind you, the Case/Deaton study, despite its shattering findings, got front page treatment and then the press and pundits moved on to the next hot news tidbit. Matt Stoller had a tweetstorm yesterday on this issue, related to the impending revamping, which almost certainly means further crapification, of Obamacare. You can read the whole tweetstorm staring . These were the linchpin of his argument:
4. When indications of rising mortality rates came in, that should have been a three alarm fire in the White House. But it wasn't.
— Matt Stoller (@matthewstoller)
8. There's just a moral emptiness and a lack of credibility when you cannot use democratically arrogated power to keep voters alive.
— Matt Stoller (@matthewstoller)
9. It goes way beyond partisanship. Democracy itself collapses when the governed see this loss of virtue among their leaders.
— Matt Stoller (@matthewstoller)
Edmund Phelps, who leans conservative but is know for being eclectic, echoed Deaton’s observations:
Other than the loss of income, he said, “many men in the Rust Belt in Appalachia have lost meaningful work and are unable to find another. People want work that provides them with some agency—they want a chance to prosper, to have the satisfaction of succeeding in something. They would also appreciate the experience of developing in the course of a career, to have self expression through imagining and creating new things. The good jobs in manufacturing offered these men the prospect of some learning, some challenges, and some attendant promotions. The bottom-rung jobs in retailing services that these men are forced to take do not. In losing their good jobs, then, these men were losing the meaning of their very lives. The rise of suicide and drug related deaths among Americans might be evidence of just that sense of loss.”
The last four decades of slow growth in the U.S., said Phelps, fit Alvin Hansen’s definition of secular stagnation “to a tee.” Phelps traced the roots of this secular stagnation, characterized by slower growth and loss of innovation, to a “corporatist ideology that had come to permeate the government at all levels” starting with the 1960s, and has “replaced the individualist ideology supporting capitalism” ever since.
Even though the panelists disagreed somewhat on remedies, all were troubled by Trump’s policy proposals However, it’s still telling that even if protectionism might not be a great remedy (or would have to be applied surgically to yield meaningful net gains, something Trump’s team appears unwilling to game out), the group seemed constitutionally unable to accept that globalization had made the working classes in the US worse off…even when that is exactly what the Samuelson-Stopler theorem predicted. For instance:
Phelps, for instance, criticized Trump’s assertion that job and income losses among the American working class were caused by trade and not by losses of innovation, and the President-elect’s “assumption that supply-side measures to boost after-tax corporate profits will bring generally heightened incomes and employment to America,” which he said runs the risk of explosion in public debt and a deep recession.
The most hazardous, said Phelps, “is the assumption that by bullying corporations, such as Ford, and stepping in to aid other corporations, such as Google, the Trump administration can achieve various objectives that will widely boost employment.”
Nevertheless, the very fact that a panel like this didn’t even dispute the claim that rent-seeking was the biggest contributor to the big jump in inequality is in and of itself a big step forward.
I wish Deaton would go a speaking tour of wealthy Democratic Party enclaves…or become regular on NPR (assuming the tote-bag carrying classes did not swiftly demand his removal). The gap between the elite professionals and the heartlands is so wide than only someone with unimpeachable credentials like his might penetrate their Panglossian bubble.