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Mainstream economics is in "disarray."
It ignores the reality of power, it neglects questions of equity, and its policy recommendations can be "little more than a license for plunder."
That's the opinion of Angus Deaton, the British-American economist who won the economics version of the Nobel Prize in 2015.
The 78-year-old professor says he's recently been changing his mind about views he's long held and it's a "discomfiting process."
But will his colleagues listen to him?
The system is broken for many
Professor Deaton's thoughts can be found in the latest edition of the International Monetary Fund's (IMF) Finance and Development magazine.
If you haven't heard of him, here's some quick background.
In early 2020, Professor Deaton published Deaths of Despair and the Future of Capitalism, with co-author Anne Case, which topped a number of best-seller lists.
It explained how the lives of America's blue-collar workers have been destroyed during the past few decades.
It catalogued how "deaths of despair" from suicide, drug overdose, and alcoholic liver disease have risen dramatically in the US since the mid-1990s, to the point where they're claiming "hundreds of thousands of lives" every year.
It linked the crisis to the weakening power of workers, the growth in corporate power, and the "rapacious health-care sector" that is redistributing working-class wages into the pockets of the wealthy.
"We live in a mirror image of a Robin Hood society, one in which resources are indeed being redistributed, not downward, from rich to poor, as Robin Hood was reputed to do, but upward, from poor to rich," Case and Deaton argued.
And in his latest book, Economics in America: An Immigrant Economist Explores the Land of Inequality (2023), Professor Deaton points a critical finger at the economics profession itself.
He discusses why "mainstream economists" are viewed so poorly by the public these days and says the profession has become unmoored from its proper basis, "which is the study of human welfare."
"Amartya Sen argues that Lionel Robbins's famous definition of economics — the allocation of scarce resources among competing ends — was a wrong turn, a terrible narrowing of scope compared with what Hilary Putnam calls 'the reasoned and humane evaluation of the social wellbeing that Adam Smith saw as essential to the task of the economist'," he writes.
For context, Lionel Robbins constructed that narrow definition of economics back in 1932.
Professor Deaton says that, as a consequence, a "central problem" of modern economics is its limited range and subject matter.
And he focuses his attention on problems plaguing the US economy today.
He warns that the income from economic growth that used to be shared widely enough through the US economy to make the whole destructive process of growth and technical advancement both economically and socially acceptable, as well as politically stable, is no longer being shared.
He says that cycle has been broken "for several decades."
"Economists who continue to endorse [that old narrative] are both out of date and thinking too narrowly," he argues.
He says mainstream economists don't have a solution to America's modern crisis because they think of human welfare in terms of money, while ignoring too many other things people care about.
"What deaths of despair and the associated catastrophes tell us is that people care about their jobs, about the meaning they get from them, and, even more, about their families, their children, and their communities," he says.
"They care about leading a dignified life in a democratic society, all things that are being lost for people without a college degree."
But he suggests a way out of the impasse.
He wonders if the economics profession needs to start thinking about pre-distribution — the mechanisms that determine the distribution of income in the market itself, before taxes and transfers — and less about redistribution.
"We need rules and policies that prevent the distress in the first place, all of which takes economists into uncomfortable territory: promoting unions, placed-based policies, immigration control, job preservation, industrial policy, and the like," he argues.
"We need to promote a more realistic understanding of how governments and markets work," he says.
How does economics need to change?
Which brings us to the IMF magazine.
The theme of this month's edition is: "Economics: How should it change?"
It asks six "eminent" economists (Angus Deaton is one) to share their thoughts on what's lacking in modern economics.
Professor Deaton has taken the opportunity to summarise key messages from his research and recent books.
He says the economics profession knows and understands many things, but something has gone wrong with it.
"Today we are in some disarray," he writes.
"Like many others, I have recently found myself changing my mind, a discomfiting process for someone who has been a practising economist for more than half a century."
He lists five major problems with the profession (you can read them here).
One has to do with the question of power.
He says the profession's emphasis on the virtues of free, competitive markets and exogenous technical change can distract it 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," he says.
Another problem has to do with ethics.
He says in contrast to economists from Adam Smith and Karl Marx through John Maynard Keynes, Friedrich Hayek, and even Milton Friedman, mainstream economists have largely stopped thinking about ethics and about what constitutes human well-being.
"We are technocrats who focus on efficiency. We get little training about the ends of economics, on the meaning of well-being — welfare economics has long since vanished from the curriculum — or on what philosophers say about equality," he says.
A third major problem has to do with efficiency.
He says the efficient use of resources is important, but when economists valorise it over other ends, and argue that questions of equity should be left to others, when efficiency leads to upward redistribution "our recommendations become little more than a license for plunder."
Then, after criticising the foundations of mainstream economics, he turns a critical eye on himself.
His thoughts on unions, free trade, and immigration
What does he think of unions these days?
"Like most of my age cohort, I long regarded unions as a nuisance that interfered with economic (and often personal) efficiency and welcomed their slow demise," he admits.
"But today large corporations have too much power over working conditions, wages, and decisions in Washington, where unions currently have little say compared with corporate lobbyists.
"Unions once raised wages for members and non-members, 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, the widening gap between executives and workers, to community destruction, and to rising populism," he says.
He says economists Daron Acemoglu and Simon Johnson have recently argued that the direction of technical change has always depended on who has the power to decide where it's going.
With that in mind, he says unions need to be involved in decisions about artificial intelligence.
"Economists' enthusiasm for technical change as the instrument of universal enrichment is no longer tenable (if it ever was)," he warns.
Then, he moves to the question of trade.
"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," he says.
"I also no longer defend the idea that the harm done to working Americans by globalisation was a reasonable price to pay for global poverty reduction because workers in America are so much better off than the global poor."
And finally, he shares his views on immigration.
"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 says.
"Economists' beliefs are not unanimous on this but are shaped by econometric designs that may be credible but often rest on short-term outcomes. Longer-term analysis over the past century and a half tells a different story.
"Inequality was high when America was open, was much lower when the borders were closed, and rose again post Hart-Celler (the Immigration and Nationality Act of 1965) as the fraction of foreign-born people rose back to its levels in the Gilded Age.
"It has also been plausibly argued that the Great Migration of millions of African Americans from the rural South to the factories of the North would not have happened if factory owners had been able to hire the European migrants they preferred," he says.
It's fascinating to see him so openly questioning some of the profession's shibboleths, at this stage of his career.
Will it lead anywhere?