02 LETTER FROM…

Letter from America: ANGUS DEATON

A Farewell Letter from America After twenty-five years of writing for theNewsletter , Sir Angus Deaton contributes his final Letter from America, in which he reflects on pastLetters , economics, and his life and times

hen I was a Research the admirable Peter Howells, who who had built their own lives in Officer in the Department has been a model of punctuality, Chicago and New York. Wof Applied Economics in encouragement, and appreciation. More ominously, non-citizens Cambridge in the early 1970s, I The Letter helped me learn to have always been at risk in the US, was befriended by Thelma Liesner, write for a non-specialist audi- especially after 9/11, even before then Thelma Seward. When she ence, or at least a non-specialist the horrors of Trump. Under the became Editor of the Newsletter audience of economists, a half-way Patriot Act of 2001 (“Inequality in 1995, and after I had moved house that is much easier than in America”, April 2002), univer- to Princeton, she remembered writing for newspapers. It allowed sities were commanded to hand me and, because she was a fan of me to write about things that over personnel files of non-citizens Alistair Cooke’s Letter from Amer- interested me but didn’t always on demand, and prohibited from ica on BBC Radio 4, she suggested I know much about, and I am grate- divulging that they had done so. In might write a Letter about economic ful for my readers’ forbearance. my own case, I (think I) suffered events in America. She suggested Writing the Letter has rarely felt nothing worse than the boorish the budget, which I never did like work, more often joy. Many attentions of an immigration officer, write about, if only because, unlike have been kind enough to say nice who took a dislike to me, tore up Britain where the contents of the things over the years, and it seems my green card, and turned my life budget become law, the American that many readers know of me into a bureaucratic hell that lasted “budget” is a fantasy wish list that only through the Newsletter. for more than a year. As President the White House sends to Congress I moved to Princeton from Bris- Obama writes in his autobiog- each year. But I did find other tol in 1983. I have never given up raphy, immigrants “are always things to write about—this is my my British citizenship, and did not afraid that the life you’d worked so 50th letter—and found an ideal become an American citizen until hard to build might be upended in outlet in the Newsletter, always 2012, in part because, until Obama an instant.” Even after that near attractively produced, relatively became president, I was less than upending, I was deterred from short, and with news, professional enthusiastic about swearing alle- applying by the impossible require- information, and obituaries. I was giance to the United States and ment that I document every trip always pleased when it landed on its leadership. But as the years abroad for the last 30 years, until my desk and always looked at it, passed, it seemed perverse not to I eventually realized that, for the and others appeared to do so too. acknowledge that my home was earlier trips, their records were no Thelma retired in 1997, and here, not to mention the homes better than mine. And Anne found since then I have worked with of my children and grandchildren my old passports in the basement. LETTER FROM… 03

Once I decided to apply for the Delaware?) As a final hurdle, citizenship, the lights turned on, with no chance to prepare, on the and the agency that I’d seen as a day of the ceremony, I was asked at Writing the Letter has persecutor became my friend. The the door whether, in the two weeks rarely felt like work, bureaucracy could not have been since I had passed the test, I had more often joy more helpful—votes matter—and I worked as a prostitute. My late col- even qualified for a special old-age league, Uwe Reinhardt, claimed to dispensation that allowed me to have answered “I have long looked answer correctly only 12 out of 20 for something in that line of work, possible questions (instead of 60 but so far without success.” At the out of 100), many of which had the ceremony, the immigration official same answer. (What is the capi- who welcomed the new Americans tal of America? Who was the first began by telling us that voting president? Who famously crossed was not an important part of citi- 04 LETTER FROM…

zenship, something that I already knew to be false. I resisted the urge to raise my hand. That I long did not become American reflected real ambiva- lence, admiring many aspects of American life while watching oth- ers with fascinated horror. Both reactions are well represented in the Letters. I frequently wrote about the immense prosperity of American institutions like Prince- ton, how their riches were put at the service of scholarship, but how wealthy universities, faced with (relative) adversity after the finan- cial crisis, acted to protect their endowments, rather than using them to ride out the crash (“Moon over Texas,” October 2010). I wrote Anne Case and Angus Deaton (image: Rebecca Wilcox, about some of the best of Amer- Purdue University) ican economics, how immensely distinguished scholars—and oth- few journals, several not under hard to tell what subjects they ers—served changing administra- professional control, gives great cover, or whether economics has a tions in Washington (“News for leeway to strong-minded and recognizable core. Perhaps that is parrots,” April 2001). About how sometimes idiosyncratic editors all to the good. the National Bureau of Economic who push their own views of what The American profession can Research, under its longtime pres- is good economics, regardless of look after itself, but publication ident (the late) Marty Feldstein, whether the journals are owned in these same top journals has generated a stream of invaluable by a professional association. It increasingly been used to assess externalities to the profession is hard to start a new journal, let young economists around the (“Economists without borders,” alone a top journal, and the rents world, risking the demise of distinct October 1998). are sometimes subverted to idio- approaches and schools that one The Newsletter, with an audi- syncratic agendas. day will be necessary for economics ence of economists, was a venue In one Letter in 2007, I wrote to evolve or to save it from exces- where I could write about the positively about the extraordinary sive American inbreeding. And American profession, again with breadth of research by job-market even within the US, I wrote of my both admiration and horror. Eco- candidates, in contrast to how horror at being told in a post-job- nomics remains extraordinarily economics had been in 1983 when market seminar office visit that, for open to new ideas and to young I first arrived in Princeton, a time the candidate, whose talk demon- people; in the US, there are still when theorists, empiricists and strated great virtuosity but neither plenty of jobs, and talented people econometricians were all working concern for nor awareness of previ- can still be tenured at top univer- on different parts of what was ous scholarship or approaches, the sities in their 20s. The American recognizably the same (price the- main threat to productivity was the profession’s susceptibility to fads is ory) elephant (“Random walks by amount of top-journal refereeing perhaps a consequence, though at young economists”, April 2007). graduate students were expected 75, I doubt that I am a good judge. Of course, it was a myopic ele- to do. In such an environment, If the profession does well by the phant that knew little about pov- fads spread fast, and knowledge young, it does much less well by erty, inequality, race, or health, cannot cumulate. In contrast, I told women; as the number of female leaving such topics to other social a story from the 1970s about an economists grows so, rightly, do scientists. Of those job market elderly Italian economist who, after the protests about how badly they papers, I wrote that it was often several glasses of brunello, splut- are treated in seminars and in the hard to tell to which field of eco- tered with rage (and wine) about refereeing process. nomics they belonged. Today, the a new journal (I suspect it was I have written (perhaps too divergence has gone further, so the then newly-founded European often) about the publication pro- that, for example, looking at the Economic Review) sending papers cess, which today seems badly contents of recent issues of the to “unknown readers,” a procedure broken. The dominance of the top American Economic Review, it is that was an affront to age and dig- LETTER FROM… 05

nity, and indeed to the orderly pro- tion, and still today an item of unsafe in politics and unsound in duction of knowledge. At the time, I faith on the right, where free-mar- morals.’ He was remembered annu- thought our new world was better, ket fundamentalists believe there ally after 1962 through the Richard that meritocracy (and unknown is no problem that markets cannot Ely lecture at the annual meetings. readers) were good things. Now, I solve. One of my ongoing sorrows In 2020, the Executive of the AEA am not so sure. (And I am increas- about economics is that, amid the removed Ely’s name from the lec- ingly fond of brunello.) cacophony of our conflicting recom- ture, not because of his views on I frequently wrote about aspects mendations, we have not been able laissez-faire, but because he “wrote of American inequality, not only in to help politicians and the public approvingly of slavery and eugen- income and wealth, but inequality understand important, but per- ics, inveighed against immigrants, across race and citizenship, and haps not so obvious things, like the and favored segregation,” views my evolving understanding that fact that free markets can’t deliver inconsistent with the AEA’s code of the American government, unlike healthcare. The piece was picked professional conduct. In “America the British government, which up by one of the health columnists wakes up to inequality,” April 2014, my parents and I had confidently in the New York Times, and my I wrote warmly about Woodrow looked to for protection, was fre- hip became famous. At my son’s Wilson, a contemporary of Ely, quently an oppressor, more often wedding, a guest asked who I was, who struggled (in the end unsuc- redistributing up than down. One and when told flashed immediate cessfully) against inequality and of my colleagues in 1983 liked recognition, “aah, you’re the man privilege at Princeton, and (with to proclaim that “government is with the hip.” more success) in the United States theft.” I was appalled, but have In one Letter, when I was Pres- (he was President when the Consti- learned how often it is true. Mem- ident of the American Economic tutional Amendments for women’s bers of Congress impeded regu- Association, I noted my surprise suffrage and the income tax were lators from stopping opioid man- at discovering that the AEA was implemented). He too was “can- ufacturers and distributors from founded five years before the Royal celed” by Princeton in 2020, in part addicting and killing tens of thou- Economic Society, which began for segregating the federal govern- sands of less-educated Americans, in 1890 as the British Economic ment’s workforce, and his name no and they have consistently—across Association, and whose founding longer appears on the School where both parties—prevented attempts meeting was attended by Edwin I once taught and worked. Amer- to rein in the depredations of a Cannan, Francis Ysidro Edge- ica—at least in part—has come to healthcare system that absorbs a worth, Robert Giffen, Neville understand that inequality is about fifth of GDP. There are five health- Keynes, George Bernard Shaw, more than money. care lobbyists in Washington for and Alfred and Mary Paley Mar- Anne and I spend a month every every member of Congress. shall. Richard T. Ely, a founder of summer in Montana, a break that Many Letters were about Amer- the AEA, and its sixth president keeps us sane, and the state itself, ican healthcare, whose horrors are in 1900-1901, was a leader of the where I usually write the fall Letter, an endless source of amazement Progressive Movement, and wrote, has often made an appearance. The and amusement to British eyes. as part of the AEA’s platform, great cosmopolitan universities on Perhaps the highpoint was about that ‘the doctrine of laissez-faire is the coasts (Atlantic, Pacific, and my own hip replacement (“Trying to be a good hip-op consumer”, April 2006), trying to find a good surgeon in the first place (“He’s the guy who did the Pope, but he’s past it”) and being mistaken for someone else at 3.00 am by a terrifyingly insistent nurse armed with drugs and needles. The point of the piece was to document the absurdity of expecting consumers to shop for healthcare as they shop for other items, an idea then being pushed by the Bush administra-

The Madison Valley and Madison Range in Montana, sometimes mentioned in the Letters, including this Farewell Letter 06 LETTER FROM…

Lake Michigan) are astonishingly have good reason to mourn the disconnected from much of America, decline of unions. The intense making it hard for those of us who political reactions to the work from work in them to sympathize with deeply interested parties, espe- or understand the way that many cially the fast-food industry, would Americans think. This includes have been no surprise to Adam their historically well-founded sus- Smith when he wrote about “The picion and detestation of the Fed- clamour of our merchants… for the eral Government. They often see support of their own absurd and federal regulations as attempts by oppressive monopolies.” outsiders to make them behave like I also had the special pleasure extras in the theme parks where of writing about the events around those outsiders come to play, outsid- the Nobel Prize. One highpoint ers who have little understanding of Princeton University, home to that stays with me (“Special edi- the ever more limited employment Sir Angus Deaton since 1983 tion from Stockholm and Wash- opportunities for them and for their ington,” April 2016) was an event children. You are unlikely to meet that has not taken place since someone in Princeton who has had 2016, which is the reception in the four children serve in the US mili- Oval Office of each year’s Ameri- tary. I drew a parallel—that I con- Economics remains can laureates. President Obama tinue to see as real—between the extraordinarily open to new opened the door himself, and as I regulations that bother Montana shook his hand, I gestured towards farmers, and the increasing meth- ideas and to young people Anne behind me, beginning “I odological regulation of academic would like to introduce. . .” which research, from which economics was as far as I got. “Professor Case is far from exempt (“Your wolf is needs no introduction to me, and interfering with my t-value,” scientific content in economics.” now we are going to discuss the October 2012). He went on to congratulate him- paper that you have both written.” My firstLetter , in October 1996, self and the rest of the profession, The paper—the first one of our was about the minimum wage, but presumably neither Card nor “deaths of despair” work—had particularly the then new work Krueger, for not being “a bevy of been published three days before, of my colleagues David Card and camp-following whores.” Another and he had read it carefully, and Alan Krueger, and I returned to notable economist, June O’Neill, suggested that we draw a parallel it two years ago after Alan died. noted, like a good Bayesian, that with the catastrophe in the Black I have never worked on the min- “theory is evidence too.” Of course, community forty years before, an imum wage, but the issues—how the profession, camp followers or idea we adopted in our book. There to do empirical work, how to bring not, understood that the empirical were no Nobel visits in the Trump evidence to bear on policy, the role result made sense if employers had years; I quoted the quip from a of theory, and the potential for monopsony power, but that fast New York Times op-ed, asking violent political controversy—are food restaurants could be monop- what Trump could possibly learn ones that I care about. sonists was itself seen as likely as from someone (Dick Thaler) who The minimum wage work, and water flowing freely uphill. works on the lack of self-control. its use of the natural experiment Jason Furman later wrote that In the next Letter (“On becoming methodology, seemed like magic Card and Krueger’s work changed superannuated,” October 2016), at the time, raising the curtain the minds of half of the profession, I recounted the story of how the on new possibilities of investiga- still a good description. In my Nobel magic brought humanity tion. As with all new methods, its own judgment, the accumulating and festivity to a dreary govern- problems became more apparent evidence supports their original ment benefit office. As my friend over time, but the history since results, as does the experience Danny Kahneman told me in 1994 is important and instruc- in Britain after 2000, and, as a 2002, the single best thing about tive. For many economists, the result, the importance of monop- the prize is, not the happiness it result that employment might go sony is more widely recognized, brings to the recipient, considera- up with an increase in the min- if far from universally so. This is ble though that is, but the happi- imum wage was obviously false. not just water flowing uphill, but ness it brings to other people. James Buchanan wrote that this a whole new world, in which the Writing these Letters has given was like claiming that water runs economy looks less like a benevo- me great pleasure, and I hope uphill, and was “equivalent to a lent market and more like a class that it has brought pleasure to my denial that there is even minimal struggle, in which working people readers too. LETTER FROM… HIGHLIGHTS 07

Letter from America: highlights The Letter from America in Retrospect

We present highlights chosen by the Editor

On social security funding, April 1997 was immediately denounced by 120 billion- The [American social security] system could aires (including George Soros, Bill Gates be made solvent for the next 75 years if père, and Warren Buffett) in an advertise- the current social security payroll tax were ment in the New York Times… raised from the current 12.4 percent to 14.6 percent, a solution that is about as likely as From a letter on American development universal health insurance, gun control or policy, October 2002 the abolition of the death penalty. The book [by William Easterly] ... will be much enjoyed by professional economists for On policy debates, October 1999 its exposition in intelligent lay language of … given the quality of much that is pub- how the technique of instrumental variables lished in both fields, it is hard to believe solves the causality problem. (The intelli- that peer-review in either economics or gent lay public is likely to doubt the sanity public health can bear the burden of certifi- of economists even further.) cation. When the results of working papers posted to the web instantaneously become part of the policy debate, traditional proce- Peter Howells, the former dures hardly seem adequate. Editor, writes: On economics and health research, When I took over from Thelma Liesner April 2000 in 1998, the ‘Letters from...’ America, … it is no longer unusual for economists to be France and Germany were a regular and asked to team up with doctors who fear that popular feature. I have lost count of the their research will not be funded without the number of times, at various RES events, presence of economists and their insights about that readers told me they enjoyed the behavior, for example about smoking or alcohol Newsletter and that it was worth reading consumption. These partnerships involve real for Angus’s letter alone. (I took this as mutual learning and are more evenly balanced a compliment in spite of its ambiguity.) than the much-noted imperialist excursions of Dealing with his letter was certainly one economics into other social sciences. Econom- of the easiest of my tasks as editor. It ics may be the 600 pound gorilla in the social was always on time (one needs to have sciences jungle, but it’s still a barely visible been an editor to appreciate what a rare creature in the Bethesda zoo. and valuable quality that is); it never needed any work; and above all it was On the new George W. Bush administra- always interesting to read. I am pleased tion, April 2001 to see that Angus has mentioned some [Larry] Lindsey has described the estate tax outstanding examples in his farewell (referred to by Republicans as the ‘death’ letter. I couldn’t have done that. They tax) as ‘the biggest impediment to capital were, all of them, gems. formation on the nation’s books.’ This view 08 LETTER FROM… HIGHLIGHTS

On the George W. Bush tax cuts, April 2003 Zero pure time preference, if it is a vice, is In Washington, there will be deficits for surely a minor one. Relying on markets to many years to come, in part in response to teach us ethics is very much worse. a weaker economy, but mostly as the result of tax cuts whose beneficiaries are typically On the Economic Journal, as part of a very well-off. In the states, most deficits letter on the AEA, April 2010 will be closed in a way that protects those The first issue of the Economic Journal who are benefiting from the federal tax cuts. starts with a statement of purpose by the There is no such protection for the elderly, Editor, Edgeworth, proclaiming that the the poor, and the sick. ‘difficulties of Socialism will be dealt with in the first number, and the difficulties of On American healthcare, April 2006 Individualism in the second.’ This situation has been compared by my Princeton colleague Uwe Reinhardt to shop- On economies and universities in reces- ping blindfold in a department store, and sion, October 2010 then months later being presented with a …economics has failed to set any limits on bill on which some items are charged at the public debate about cause and effect in full price, and some at some fraction of full macroeconomics… what people think is well price, but with no advance knowledge of predicted by their political ideology… While either what one has bought or what it will I am not naïve enough to suppose that eco- cost. And this is for those fortunate enough nomics has a core scientific content that to have insurance. can be separated from politics, an outsider might wonder just what we have all been On changes in economics, April 2007 doing for the last eighty years. If the typical thesis of the eighties was an elaborate piece of price theory estimated by On criticisms of economics, October 2011 non-linear maximum likelihood on a very Robert Zoellick… jibed that ‘in physics, small number of observations, the typical the- Nobel prizes are awarded for being correct sis of today uses little or no theory, much sim- while in economics they are often awarded pler econometrics, and hundreds of thousands for being brilliant’. (It is an interesting exer- of observations... The extent to which data cise to list economics laureates, and allocate can effectively be substituted for theory is them to one or other of Zoellick’s boxes.) clearly a topic that is being actively explored, at least empirically... In the end, it is hard On economics and other disciplines, also not to think that the quality of research owes from October 2011 more to people than to methods. Behavioral economics and psychology are everywhere, and it is much harder than once was the case to see any real distinc- tions between what economists do and what the refusal to consider ethical questions is done by sociologists, psychologists, and explicitly but to leave them to the market political scientists. This is not the imperi- is surely the American vice. How do the alist economic enterprise of 20 years ago, where economists set out to conquer their preferences of unborn generations get poor sisters – armed with rational choice and expressed in the bond market? a self-proclaimed monopoly on the tools of causal inference… Instead, economists now believe that it is impossible to think about economic development, or about macroeco- On climate change and the Stern Review, nomic policy, without incorporating politics, October 2007 and that sociology and psychology have seri- If zero discounting (with perhaps a touch of ous things to tell us about human behavior. paternalism) is the British vice, the refusal to consider ethical questions explicitly but On the costs of unemployment, April 2012 to leave them to the market is surely the While there is endless speculation about the American vice. How do the preferences of effects of unemployment and recession on unborn generations get expressed in the the election prospects of President Obama bond market? Do we really want to discrim- and his opponent… there is little discus- inate across people by their date of birth? ... sion of what the recession is actually doing LETTER FROM… HIGHLIGHTS 09

l have often thought of the story of the dog who liked to chase buses, but had little idea of what it would be like to catch one. The Nobel is not just catching the bus, but being run over by it

to people. Apparently, the main effects of On the minimum wage debate, April 2019 interest are those on the chances of politi- My friend Anthony Appiah, a philosopher cians in the election… Jobs mean more than who thinks about and comments on public income, and the loss of a job brings a loss of policy, recently asked me, with some irrita- structure and meaning and it is most likely tion, why economists had still not managed this that brings the loss in well-being. to settle what seemed like a straightforward question… But perhaps Appiah’s question On economists and inequality, October 2013 is ill-posed and has no general answer? Why Yet here are two areas [health and do we economists — as well as non-econo- gender equality] where I believe that econ- mists — suppose that the effect of a treat- omists, not through any political commit- ment should always be the same, or at least ment, but through their regular activities, always act in the same direction? have been helping keep inequality under control, and where, as is often the case, On the Covid-19 pandemic, April 2020 the realisation comes only when they stop But the truth is that no health system, how- doing so, or when the forces on the other ever well designed and funded, could deal side win a victory. with the plague that threatens to overwhelm us. No planner would make preparations for On winning the 2015 Nobel Prize, April 2016 something that we have not seen in a cen- As many previous recipients have told, the tury, would construct intensive care units experience is both exhilarating and over- that are almost always empty, nor construct whelming; l have often thought of the story tens of thousands of ventilators that are of the dog who liked to chase buses, but had almost never needed and would rust in place. little idea of what it would be like to catch one. The Nobel is not just catching the bus, On multiple crises, October 2020 but being run over by it. …it is hard not to infer that, so long as the elite are not suffering, and as long as the On the American healthcare debate, stock-market remains airborne, our current April 2017 political system will not help those in trou- At the end of his [1963 AER] paper, Arrow ble… I hope that I am wrong. Perhaps there wrote: ‘It is the general social consensus, is hope in the idea that it will take multiple clearly, that the laissez-faire solution for crises to change a deeply broken but well-de- medicine is intolerable.’ This is perhaps one fended economic and political system. of the few sentences in the paper that has not stood the test of time, though there is nothing at all wrong with the last clause. The Letters from America On personal memories of economists, October 2017 The RES has an online archive dating back to The first seminar I ever heard in economics, April 2013, at in Cambridge in 1969, was Tony [Atkinson] https://www.res.org.uk/news/newsletter/ presenting his famous paper on the meas- urement of inequality. It made me think The full set of Letters, from October 1996 that economics was a pretty cool subject, I onwards, is available here: thought all economics talks were like this, https://scholar.princeton.edu/deaton/ and it ruined me for a lifetime of seminars. letters-america