Second Thoughts

It makes for arresting reading. Nobel prize–winning economist Angus Deaton has been a practicing economist for fifty years. In a recent column for the Chronicle of Higher Education, he explains that he has changed his mind about a number of important matters, among them the following:

Our emphasis on the virtues of free, competitive markets and exogenous technical change can distract us from the importance of power in setting prices and wages, in choosing the direction of technical change, and in influencing politics to change the rules of the game. Without an analysis of power, it is hard to understand inequality or much else in modern capitalism.

Put simply, there’s more to economics than economics. Without considerations of political economy, an economist cannot give an accurate account of actually existing economies.

“We often equate well-being to money or consumption, missing much of what matters to people. In current economic thinking, individuals matter much more than relationships between people in families or in communities.” In other words, never trust an economist who hasn’t read Aristotle and Augustine. He operates with an impoverished account of the motives that drive us: our interests, desires, and aspirations.

An impoverished, “economistic” anthropology gives rise to theoretically elegant explanations that turn out to be true only in narrowly circumscribed situations, while the big picture remains obscure, or even distorted by efforts to shoehorn complex realities into narrow economic frameworks. As Deaton confesses, “Historians, who understand about contingency and about multiple and multidirectional causality, often do a better job than economists of identifying important mechanisms that are plausible, interesting, and worth thinking about, even if they do not meet the inferential standards of contemporary applied economics.” As John Henry Newman noted, only small truths can be proven; consequential matters must be weighed and judged, an art improved by the acquisition of general knowledge. The best economists are able to think in more than economic terms. Witness Albert Hirschman and Karl Polanyi.

Deaton puts forward some specific reconsiderations. They concern the neoliberal consensus that has reigned supreme for the last fifty years. Deaton’s second thoughts are explosive.

In the past, Deaton regarded labor unions as a drag on economic efficiency and thought their demise a net gain for society. Now he thinks otherwise.

Unions once raised wages for members and nonmembers, they were an important part of social capital in many places, and they brought political power to working people. . . . Their decline is contributing to the falling wage share [of firm profits], to the widening gap between executives and workers, to community destruction, and to rising populism.

Might it be the case that in our particular moment in history we would be well served by legislation that encourages private sector unions? For everything there is a season.

Deaton has second thoughts, too, about one of the pillars of globalist thinking. “I am much more skeptical of the benefits of free trade to American workers and”—here comes the bombshell—“am even skeptical of the claim, which I and others have made in the past, that globalization was responsible for the vast reduction of global poverty over the past 30 years.” He speculates that India and China would have experienced rapid growth without the American-designed global system of free trade. Then comes a mea culpa: “I had also seriously underthought my ethical judgments about trade-offs between domestic and foreign workers.” All of us, including green-eyeshade economists, have obligations to our fellow citizens. A generic love of humanity sounds high-minded, but it is not.

What about immigration? Deaton has changed his mind on this topic as well. “I used to subscribe to the near consensus among economists that immigration to the US was a good thing, with great benefits to the migrants and little or no cost to domestic low-skilled workers. I no longer think so.” He observes that economic inequality was high during the Gilded Age, when few limits were placed on immigration; it fell as restrictions were imposed, then rose again when they were lifted, beginning with the 1965 Immigration and Nationality Act. Like globalization, open borders come at a significant cost to the most vulnerable Americans.

Late in his life, Augustine dictated his second thoughts, his Retractationes, which are detailed and extensive. Deaton’s reconsiderations are short. But they are consequential. One hopes that many others who constructed and justified the economic consensus of the last fifty years will have the courage to do the same.