Millions of Americans have seen their wages stagnate for decades, even as the wealthiest have grown fantastically rich. Economists Angus Deaton and Anne Case believe the health-care system is partly to blame, and the coronavirus is highlighting the broader dangers American society is facing.
The college town of Princeton is located in New Jersey, which has been hit especially hard by the coronavirus. The Nobel laureate economist Angus Deaton, 74, and his wife Anne Case, 61, have thus spent a lot of time at home in recent months. Both are at particular risk from COVID-19. In spring, the couple published the book “Deaths of Despair and the Future of Capitalism.” It traces the fall of the American working class, which has seen wages stagnate for decades. The two believe the country’s desolate health-care system is partially to blame.
DER SPIEGEL: Ms. Case, Mr. Deaton, the whole world is wondering why the United States has been hit so hard by the coronavirus pandemic. Do you have an explanation?
Deaton: We’re not epidemiologists, but the pandemic is once again revealing that the U.S. health care system is a mess. It was a mess before the pandemic, but the pandemic is really showing how problematic it is. More than 30 million people have lost their employment. And now, because insurance is tied to employment, there are millions of people without health insurance.
DER SPIEGEL: The U.S. has some of the best doctors on earth, an innovative pharmaceutical industry and world class hospitals with the best medical technology. Where is the problem?
Case: The U.S. is spending around 17 percent of GDP on health care, more than any other country in the world. But we have the lowest life expectancy of any rich country in the world. And the health-care industry is responsible for a lot of this.
DER SPIEGEL: You have even called the health-care industry a “parasite on the economy” and said it is “like a tribute to a foreign power.” Isn’t that a bit of an exaggeration?
Deaton: The man who first compared the health-care industry to a tapeworm was Warren Buffett, the famous investor. There are many ways of figuring out what the health-care industry ought to cost and what it delivers. Take, for example, the comparison with Switzerland, the country with the second highest health care expenditures as a share of GDP: They spend 12 percent of GDP, but they live six years longer on average than Americans! If a fairy godmother were somehow to reduce the share spent on health care in America to the Swiss level, a lot of money would be available for other things. It would free up a trillion dollars. That’s the “tribute” that we refer to, the waste. But we are paying it to ourselves, or to some of ourselves, not to a foreign power.
Case: We are not attacking the people in the industry. The doctors and nurses are doing a tremendous job, especially during this crisis. We are attacking a system that is no longer functional.
DER SPIEGEL: But it’s a very American system. It stresses personal responsibility.
Deaton: I don’t think so. It’s especially putting pressure on working-class Americans. A family policy last year cost $20,000 a year. This may be affordable for high paid workers, but not for those who earn less, say $30,000 a year. So as rates kept getting larger and larger in recent years, corporations cut back on hiring low-wage workers. In short, the cost of health care and our system of financing it is a wrecking ball to the less-educated labor market, throwing people out of good jobs into much worse jobs in the outsourcing sector, or out of the labor force altogether.
Case: At the same time, federal and state governments pay for a large chunk of medical care for the elderly or for people without the means to pay for Medicaid. But that is putting great financial stress on the states, because every year, the cost of providing health care goes up. There is less money left over to repave roads or to fund state universities. In the long run, one of the mechanisms by which working-class children could get a good college education is being pulled out from under them because tuitions are being raised.
DER SPIEGEL: You have argued that this is one reason why many workers without a bachelor’s degree have left the labor market. What becomes of those people?
Deaton: Some of them live off government benefits. Some of them take early retirement or live off friends or relatives. Some move into a cheaper place. There are lots of ways of surviving.
DER SPIEGEL: They fall into poverty?
Case: Not necessarily. It’s more a disintegration of a way of life. One of the consequences is that, in those areas, there is a reduction of social integration. There are fewer marriages in the white working class, fewer people going to church, fewer people with stable home lives and a lessened sense of community. That puts these people at great risk.
DER SPIEGEL: And it contributes to those deaths of despair, as you have called them. What is behind this phenomenon?
Case: We were puzzled by the discovery that mortality rates are no longer sinking, but accelerating in the group of middle-aged whites with low education. They are dying from drug overdoses, alcoholic liver disease and suicide – all deaths by their own hand. And they have all risen dramatically since the early 1990s.
DER SPIEGEL: Why? What about the opioid epidemic?
Deaton: If despair due to the hollowing out of the white working class wasn’t there, the drug epidemic would be much smaller. The despair is smoldering in society, and this created an opportunity for the pharmaceutical industry, an industry that is not appropriately regulated, which made the situation with opioids much worse. At the height of it, there were enough prescriptions for every American to have a month’s supply. It was essentially legalized heroin.
DER SPIEGEL: What has caused this mass-despair in white, middle-class life?
Deaton: Look at the labor market, at wages. Life-time jobs and the meaning that comes from a life like that is very important. Roles for men and women are defined by it, as is their place in the community. It’s almost like Marx: Social conditions depend on the means of production. And these means of production are being brought down by globalization, by automation, by the incredible force of health care. And that’s destroying communities.
DER SPIEGEL: Yet where there are losers, there should be winners as well. Who is to blame for this development?
Deaton: Many people have said that there are two ways of getting rich: One way is by making things, and the other is by taking things. And one of the ways of taking things is to make the government give you special favors. Those special favors don’t create anything, but they can make you rich, at the expense of everybody else.
Case: For instance, the pharma companies get a law passed that Medicare has to pay for drugs at whatever price the pharma companies choose. Or the doctors’ lobby doesn’t allow as many people to go to medical school, which helps to keep doctors salaries up. That’s one of the reasons why doctors are the largest single occupation in the top 1 percent.
DER SPIEGEL: Would you argue that those in the top 1 percent are peculiarly prone to rent seeking?
Deaton: No, but many people are in the 1 percent because of rent seeking. This mechanism is creating a lot of very wealthy people who would not be wealthy if the government hadn’t given them a license to rip off the rest. We’re not among the people who think of inequality as a causal force. It’s rent-seeking opportunities that create inequality.
DER SPIEGEL: How do the losers of this development react politically?
Deaton: Well, many of them like Donald Trump (laughs)!
Case: The election in 2016 was unique: Many people felt their voices weren’t being heard either by the Republicans or the Democrats. They tended to move either toward Bernie Sanders on the left or to Donald Trump on the right. They wanted to signal that things were not well with them, that they did not see the country moving in the right direction. People did not feel like the parties in the middle were adequately serving their needs, especially the working-class people.
DER SPIEGEL: It’s a phenomenon seen throughout the West – that center-left parties are no longer champions of the working class and that their leaders are mostly intellectuals.
Deaton: In the United States, the Democratic Party gave up representing the unions and switched to being a coalition of well-educated elite on the one hand and minorities on the other. And the white working-class in the middle was just left unrepresented. In this respect, Hillary Clinton was the worst candidate you could possibly imagine. She’s such a representative of that educated elite that appears to have no understanding of, nor sympathy with, ordinary working-class people.
DER SPIEGEL: She called them “deplorables.”
Deaton: It revealed what she really thought of them. But those people do not see themselves as deplorable at all! There are a lot of people who think they’re not represented by this educated elite, whether it’s on the left or the right.
DER SPIEGEL: So the rage of Trump supporters has a rational foundation?
Case: Oh, certainly! They know something is wrong, and it’s easy to scapegoat in such cases. Things like: If we can just shut down immigration, then wages would improve.
DER SPIEGEL: The president himself seems to be the rent-seeker in chief. Is he actually doing anything to mitigate the pain of his base?
Deaton: He – like inequality – is a consequence, not the cause. He certainly has changed attitudes towards international trade. Even Democrats have picked this up. And it’s possible that the dismantling or slowing down of globalization could benefit some white, working-class voters. On the other hand, if manufacturing is being brought back to the U.S., robots are likely to be doing most of the work, not the less educated.
DER SPIEGEL: Yet Trump himself is a member of the top 1 percent. Why are those voters attracted to Trump?
Case: He makes people feel that they have status, that they’re being seen and heard. That’s incredibly important. And if people can hold on to that and have faith in him, then even if things go against what they see as their immediate interests, they believe that in the long run, he will restore them to some position. People need hope.
DER SPIEGEL: But has he ever delivered?
Case: Not in an economic sense, probably, but in terms of how they feel about themselves and their status, certainly.
Deaton: We spend a lot of time in Montana when we were writing our book and we talked to a fair number of people there. They are very Republican. The Montanans feel that a lot of the regulations they have to obey, a lot of the environmental regulations, the wildlife regulations, are being set not in their interests, but in the interests of the educated elites in California and New York. Issues like bringing the wolves back are divisive that way. Donald Trump is certainly doing something for those kinds of concerns by dismantling regulations. I’m sure he would kill all the wolves in Montana if he could.
DER SPIEGEL: Is it possible to identify the point when things started to go wrong in the U.S.?
Deaton: One great question to ask is: Why doesn’t America have a strong federal welfare state with health care like other European countries do? One answer is the issue of race. In the middle of the 20th century, it was the southern senators of the Democratic party who blocked any consideration of publicly funded health care. People don’t like to pay for services that go to people that don’t look like them, especially when they are black.
DER SPIEGEL: There have been a lot of attempts to reform the system, the latest being Obamacare. Why did it fail?
Deaton: Obamacare was a good proposal, but in order to get it through, all the health care providers had to be bought off, and that made them even stronger. What Obamacare was doing was extending insurance to many more people, but there were no effective price controls. It got more people covered, but it made the whole industry even more expensive, not less.
DER SPIEGEL: If American capitalism is failing so many, is it still possible to fix the system?
Deaton: We’re certainly not in favor of killing robots or stopping buying cheap goods from abroad. A really essential problem is the reduction of lobbying in Washington. I’ve talked to a few politicians and they say: We need campaign finance rules. As one congressman said to me: As long as I’m spending all my waking hours raising money, I can’t resist these people.
Case: The other heavy lift would be change in our education system. Currently, from kindergarten to high school, the focus is on children who will go on to university, where only 35 to 40 percent of them currently earn a bachelor’s degree. Education is a great divide when it comes to death, when it comes to pain, to mental health, marriage. Even in Britain, you don’t have this sharp divide between people with an BA and people without. Many people point to Germany as being a superior system, where there are many different qualification levels. We need something more like that.
DER SPIEGEL: You are critical of the political process in Washington. What has to change in order to put powerful interest groups on the defensive?
Deaton: Maybe this crisis will speed change up, a 50-50 chance perhaps. You know, catastrophes are not good for reform, or at least they’re very risky: Think about the 1930s, America got Roosevelt, but you in Germany got Hitler. So, it could strengthen populism, it could undermine democracy. Or it could make it stronger.
DER SPIEGEL: You seem a bit tentative, though. You criticize bottom-up redistribution, but you’re not arguing in favor of those re-distributional policies that some Democrats want. Why are you against more progressive income taxation?
Deaton: As we mentioned earlier, in our view, inequality is the result of other deeper problems. First, we have to fix those deeper problems, and then we can worry about the tax system.
DER SPIEGEL: Amazon founder Jeff Bezos, to take one example, has a fortune of more than $100 billion!
Deaton: We have no objection to people who bring us enormous benefits getting very wealthy. We’re against people getting rich by burdening other people. The trouble with unfairness, though, is that everybody has different notions about what it is. The unfairness we identify is the rich getting rich by transferring money upwards. If you tax the rich, if you even take away all their money and give it to the poor, each of them would get only very little money.
DER SPIEGEL: What is your proposal?
Case: We want to focus on the reverse procedure: We have to put a stop to very rich people getting even richer by taking small amounts of money from millions of us. For example, every month I get a bill from a tech company for 99 cents for a service that I don’t remember ever asking for, and that I have no idea how to stop and it’s not worth my time trying to find out. But if, as I suspect, they do it to millions, it is small amounts of money moving from a large number of people to a small number of very wealthy people. That is just one example of the sort of upward redistribution that we talk about in the book.
DER SPIEGEL: Ms. Case, Mr, Deaton, thank you very much for this interview.