Without an analysis of power, it is hard to understand inequality or much else in modern capitalism.”
Angus Deaton, March 2024
Angus Deaton is the economic doyen from central casting. The bow-tie-wearing econometrician was born in Scotland, did a PhD at Cambridge and has been at Princeton for the last 40 years. He’s currently the Eisenhower Professor of Economics and International Affairs Emeritus. He won the Nobel Prize for Economics in 2015. And he’s just dropped an almighty bucket of shit on his entire profession.
Where Deaton published it is almost as interesting as the contents: at the International Monetary Fund, that institution once seen as the standard-bearer of neoliberal orthodoxy, but which has in recent years developed a curiosity about the real-world impacts of the hardline policies it once imposed upon or prescribed to countries.
Deaton lobs a series of truth bombs at his own profession, the result, he says, of “changing my mind, a discomfiting process for someone who has been a practising economist for more than half a century”. These include:
- “We have largely stopped thinking about ethics and about what constitutes human well-being”.
- If “economists should focus on efficiency and leave equity to others, to politicians or administrators… the others regularly fail to materialise, so that when efficiency comes with upward redistribution — frequently though not inevitably — our recommendations become little more than a license for plunder”.
- “Historians, who understand about contingency and about multiple and multidirectional causality, often do a better job than economists of identifying important mechanisms…”
- Far from being “a nuisance that interfered with economic (and often personal) efficiency”, 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 in the workplace and in local, state, and federal governments. Their decline is contributing to the falling wage share, to the widening gap between executives and workers, to community destruction, and to rising populism.”
- “I am much more sceptical of the benefits of free trade to American workers and am even sceptical of the claim, which I and others have made in the past, that globalisation was responsible for the vast reduction in global poverty over the past 30 years”.
- Immigration contributes to inequality.
But Deaton’s main point is a recognition of how power distorts policy: “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.”
What’s extraordinary is that a Nobel Laureate economist has only achieved this realisation so late in his career. Anyone with practical experience of policymaking, or with training as a historian, or even someone who has worked as a lobbyist or consultant, has a grasp of what Deaton has only belatedly realised: modern capitalism, particularly in its neoliberal form that disempowers governments and rivals like trade unions, is about the use of power by corporations to “change the rules of the game”, to increase certainty for themselves and reduce it for competitors, workers and consumers. It speaks volumes about how sheltered many mainstream academic economists really are.
But it’s not merely economists. What is equally extraordinary is how little this reality of how power distorts capitalism (which is a defining element of our mission statement here at Crikey) is recognised in a supposedly well-educated developed economy like Australia. True, the distorting effects of oligopolistic corporations on inflation, and the impact on wages growth of the decline of unions, are two examples that have attracted attention in the mainstream media over the past couple of years. But both are issues some progressive economists have been talking and warning about for over a decade.
Such topics remain taboo, or bitterly attacked, in organs like the Financial Review. Instead of reporting Deaton’s comments, today the AFR covered yet another speech calling for deregulation and tax reform by yet another chair of the Business Council, and the wisdom of Peter Costello on higher interest rates.
It’s what passes for economic debate in a media that, far from recognising the role of power in capitalism and seeking to hold that power to account, is part of the power structure itself. Our corporate media, like other large corporations, likes to influence politics to change the rules of the game. Not only is it unwilling to scrutinise such power, it is incapable of doing so.
Very interesting. Deaton is of course not the first eminent person to have such an epiphany in their twilight years. There is, for example, the brilliant Robert McNamara, who achieved so much developing more efficient bombing tactics for the US air force from WWII to Vietnam, and was also a central contributor to the US nuclear weapons strategy for many years; in the astonishing film documentary The Fog of War a very old McNamara passes a harsh judgement on his younger self. I’m also reminded of various medieval barons who spent their lives killing, robbing and plundering, before in their declining years endowing a monastery or two and becoming rather pious.
Economics seems to have drifted by small degrees to the position Deaton now condemns. Early economists would be very unlikely to separate their work from a moral context. Adam Smith is perhaps the best known, and he is usually described as a moral philosopher first and an economist second. It is truly disgraceful how Smith’s legacy is traduced and dishonoured by the ghastly mob at the so-called Adam Smith Institute for neoliberal propaganda and political lobbying.
Anyway, Keane is right to point to the deafening silence meeting Deaton’s essay. It is very likely it will be suppressed one way or another, even if his colleagues have to start rumours that ‘poor old Deaton’, once so brilliant, is sadly declined, effects of medication, inclined to wander…
Thanks SSR for highlighting McNamara’s apostasy and Adam Smith working within a moral framework. You’d reckon that anyone with Nobel Laureate attached to their name delivering a road to Damascus address to as august a body as the IMF would be considered newsworthy by any standard. Has it come to this?
Yep IT? has come to this or it had come to this decades ago They are called rich and powerful for a good reason like red belly black snake? what does it look like well….. first its a snake its black and it has ………?
Herman Daly, senior economist at the World Bank 1988/94, was another who saw the light.
Daly was promoted via the fossil fuel Club of Rome under the guise of junk science i.e. ‘limits to growth’ and also promoted with Ehrlich’s the ‘population bomb’ and ZPG Zero Population Growth.
Basically proposes closed borders, tariffs, no multilateral trade agreements nor blocs e.g. EU, no migration etc. for an autarkist economy like 1930s Italy or Germany that gives power the advantage over liberal democracy and empowered citizens?
It’s promoted as environmentally friendly, but of course when via Tanton Network it’s greenwashing of fossil fuels and eugenics.
It’s why the fossil fueled ‘degrowth’ movement is merely ‘greenwashing’ i.e. junk science rubbish to try slow transition away from fossil fuels.
Well said SSR. I enjoyed your reference to Adam Smith. My thoughts exactly. Well done.
And then we have the war c-r-i-m-i-n-a-l, John Howard, who has ‘no regrets’ from his prime-ministership.
I like the McNamara reference, Fog of War is great especially when the interviewer asks something like where you wrong and he mumbles about info available, what we believed to be true blah blah when pressed he finally says yes we were wrong but we only killed a few 100,000 civilians, so no big deal i still sleep well at night OK the last bit is mine but it is true tho he did not say it.
I can’t believe that the vast bulk of humanity couldn’t predict the trashing of ethics that had to follow from the Friedman doctrine that corporations should only concern themselves with maximising profits, no matter what. Let alone professional economists. It certainly does speak wonders.
Now we are in an almighty mess with a very hard road to sort it out.
Agree, completely. It was obvious in the early eighties that neoliberalism was going to be a complete disaster, not just to economies and polities, but also in a broader cultural sense. Just look at the rise of so-called “reality television”, which, in its combination individualism, competition and winner takes all, brings neoliberalism down to a more popular level. Entertainment it might appear to be, ideology is what it really is.
The majority of the population are insufficient intellectually curious to even consider how neoliberalism has damaged polities and their own lives. Such a consideration would require taking the big picture, something too difficult for most people. And the barons of the media and the consultancies know this.
Corporations absolutely rely on the average punter being incurious about how the world works.
The GFC should have had the scales falling off everybody’s eyes – but no, they doubled down and ended up breeding the populist leaders.
People trust msm, they don’t expect an ideology designed to make them poorer and worse off intellectually., propaganda. It was the smarter better educated people who allowed this to happen, like us, it still is.
Nothing wrong with the Friedman doctrine that corporations should only concern themselves with maximising profits and then it’s up to society/governments to make sure they don’t by regulating them within an inch of their profit margins (what Friedman missed out!).
No seriously I hate when people talk about ‘corporate responsibility’ or ‘ethical capitalism’. That just invites complacency.
Subscribers to the AFR would be breathlessly hanging on Peter Costello’s pronouncements. This would be the same Peter Costello who decreed the gold standard “no longer plays a significant role in the international financial system” in 1997. He then proceeded to sell two-thirds of Australia’s gold bullion at US$306 per ounce in a single day.
The same Peter Costello who is in charge of the Future Fund? Good grief. Yes, let’s listen attentively to him rather than publish an interview with a Nobel Laureate economist who now swims against the current. Australian media is so dumbed down it’s an embarrassment.
Thought the economic genius, Peter Costello was retiring from the Future Fund.
One of the many benefits of his law degree … (that other economic guru, Joe Hockey, is another example)
You are correct, Costello was replaced as Chair by Greg Combet in February.
Dumbed down? Cheap w-h-o-r-e-s, maybe.
Erm the gold standard does “no longer plays a significant role in the international financial system”….
Now the thing to do with that information is to use it to your advantage!
The same money that is used for nuclear subs can be used for public services.
Thats right – to quote from Wikepedia:
The gold standard was the basis for the international monetary system from the 1870s to the early 1920s, and from the late 1920s to 1932[1][2] as well as from 1944 until 1971 when the United States unilaterally terminated convertibility of the US dollar to gold, effectively ending the Bretton Woods system.[3] Many states nonetheless hold substantial gold reserves
Good for Deaton, and thanks to Bernard for bringing him to our attention. Keynes, that extraordinary mind, came to economics from an essentially moral perspective, seeing that its purpose was to enable people to live better lives. As the father of macro economics, he created the structures that would-be successors worked within, though they never admitted it. The contribution of the so-called neo-liberals, Hayek and Friedman etc, was to leave out the moral bit and just focus on abstractions like efficiency, sadly gaining traction in the real world, notably with Reagan and Thatcher, and every self-serving financial interest since.
Thanks to decades of this drum being beaten, considerations of ‘the economy’ are a like a club used by right wing politicians to control the nations wealth in the interests of their sponsors. Our supposedly Labor government is so brow-beaten by this rubbish that they are frozen in their seats, unable to take the most obvious actions, like abolishing the capital gains tax discount, to at least try fix the price disaster.
This efficiency mantra pervades the Australian Public Service as well. That is why the APS is failing Australians on so many counts.
Well, yes. Robodebt revealed the extent to which the APS, at least the upper echelons, is a morality-free zone.
Also, the Haines report into hotel quarantine provided an interesting window into Victoria’s public service. As a logistical exercise hotel quarantine was something of an organizational tour-de-force, but sadly the hard-working, well-meaning public servants running it forgot it’s actual human purpose – infection control – so they didn’t drop the ball, they didn’t manage to gain possession.
The response to the pandemic and Ambulance ramping ETC to any thinking person proves that the privatisation of our hospital system has been and still is an abject failier and we have learn nothing from it in SA we are now building a new childrens hospital with less beds than the existing Children’s hospital ? At the expence of the park lands and the police force with the argument that it will be integrated into the new Royal Adelaide precinct ( but with a train line between them ? ) While Private hospitals continue to get fat skimming the profits from those forced onto private health and Govt hospitals are full of those who cant afford to pay ,While a state government buys ambulances ,build new ambulance stations for ambulances that have no where to go (ramping ) AND spends up big on diversion ( car races and festivals ) to encourage us all to look elsewhere
” While Private hospitals continue to get fat skimming the profits from those forced onto private heaIth”
Private Hospitals make sure that they only deal with the easy part of healthcare and leave complexity to public healthcare.
Yet another example of privatizing profit and socializing cost.
Yet another reason why JWH: australia’s very own a***h*le.
It even pervades the public health system. Units that do good work with the more difficult cases are bashed because their average length of stay (the only KPI that now matters) is longer than the units that decline to take anyone likely to be more difficult to treat.
As someone who studied economics at high school in the 60’s and college in the 70’s I can only agree with Bernard Keane’s commentary. The demise of effective unions and the rise of corporate HR ‘professionals’ has driven the inequities we see in neoliberal economies. I am afraid that now, in my 70’s, I am more radical than I was fifty years ago, but feel far less positive about the future.
Agreed. I’m a similar age and can remember when Personnel Departments were honest brokers between worker and management. Then they evolved (?metastasised) as HR Departments into the storm troopers for management, often being so feral that management had to reign them in (especially after the lawyers advised of possible legal breaches in processes).