Angus Deaton: When we first started this work, which was in the summer of 2014, so seven years ago until now, we noticed this reversal where mortality of midlife, you know, people in their 40s and 50s, which had been declining for more than a century. A bit rocky sometimes, but a pretty steady decline had started turning around. So, you know, instead of continuing to go down from the mid-90s until when we were writing, it had started to rise, and so this is something you really don’t expect to see at all. We didn’t know at the time that overall life expectancy was falling.

Anne Case: But what was happening was only happening in the US. When we compared what was happening in the US to other wealthy countries, other English-speaking countries, their mortality rates continued to fall. So, progress was continuing elsewhere. But in the US, in one particular group among whites, which are the most privileged group in the US, mortality rates had started to rise and this came as a surprise to us. And it came as a surprise to all of the other people that we showed this to. We thought everyone must know this that works in this area. But it was a shock, so that was the beginning. And we started to dig to try to find out what is going on here, why did progress not just for a year but over two decades.

Angus Deaton: Right, it was such a shock at the time. We had a lot of trouble getting the paper published, eventually we did get it published. There was just a tsunami of interest in it. And I like to tell the story that I got the Nobel prize in October of 2015 and there’s a huge amount of publicity that comes with that I’m sure, you know, but this paper then came out two weeks later and the publicity around this paper was just huge, compared even with what had happened with the Nobel prize. So, we knew we really put our finger on the nerve and the people were very excited about this.

Wang Huiyao: This is a fascinating book , I think that you have done a very substantial analysis, with all the data and discovery. Actually, I mean basically, life expectancy in the wealthiest country in the world fell for the first time in decades. And life expectancy, you know, in the US it fell again in 2016 and for the third time in a row in 2017. And you know now we were hit by this pandemic going on around the world. So, I think, of course, US is one of the wealthiest countries that achieved a high life expectancy and brings lessons for other countries to learn, for China and the world. So, what can we learn from that? Because China is actually getting a bit higher life expectancy now as a population census report released about two days ago and China is having an improved life experience. But we should be careful of learning the lessons from other countries as well. Maybe you could shed some light on that as well.

Angus Deaton: I think this is not a very helpful thing but one of the things to say is to make sure some of the things that happened in the United States that do not happen elsewhere. So that’s one of the lessons it doesn’t tell you in detail, I mean, and I’ve talked about this in China before. But you know we draw an analogy in the book with what happened in China in the 19th century, when opium dealers from Britain, sort of forced their way into selling opium to the Chinese people very much against local wishing. And to some extent, there’s a parallel with what happened in the United States – the very powerful pharmaceutical companies and pharmaceutical distributors distributed enormous amounts of opioids, essentially legalized heroin, which caused terrific trouble in the United States, with many people dying.

Anne Case: So, the three causes of death that were rising that caused mortality to turn around in the US were: suicide, drug overdose and alcoholic liver disease. So, we, as a shorthand, we call those deaths of despair and it was really just a shorthand for those three causes of death. But in those three causes of death, what we saw was a great deal of despair that people don’t kill themselves with drugs, alcohol or a gun unless something is going very badly wrong in their lives. So, in the book what we did was, first to document that this was indeed happening throughout the US, but only for people who were not well educated, only for people who did not have a four-year college degree. And so, from there, we turned to economics to ask the question – what is it that’s happened in the US, that has happened only to people without a four-year college degree, that might be powerful enough so that people would start killing themselves in very large numbers?

Angus Deaton: And a very important part of that story throughout was that it wasn’t happening in other rich countries around the world. Or,  it was happening and it is happening a little in Britain, Canada and Ireland. It’s not happening anything like with the same scale as in the United States, which means that stories about globalization or technical change, which many people tend to blame – you can’t really tell that story without saying, why is globalization and technical change having such different effects in Germany and Britain than it’s having in the United States?

David Blair: Could I ask you to delve a little bit deeper into the sort of the deep causes? I was very struck by your statement a minute ago that you want other countries to be able to draw on the lessons that of what the US suffered and not to repeat the same mistakes. I never thought I’d be looking back on the 1970s as possibly , a kind of a golden age , but at that time real median real wages were going up which they haven’t been risen since 1979. Do you think you could discuss a bit more on what you think, either policy changes, environmental changes or social changes that you would think were driving it? Was it a change in Society, was it failure to enforce anti-monopoly laws, or changes in the financial system? There are all sorts of hypotheses and I’d just like you to elaborate on what you think as the major causes.

Angus Deaton: Well, we can push these back and forward between us. But almost all of the environment about all, a lot of bad things are happening. The question really is to establish what caused through this sort of changes. So, there’s been a lot of social disintegration which Robert D. Putnam famously wrote about it, in Bowling Alone, you know, he wrote to us and said that he thought the title of our book was the best title he’d seen in many years. And he said you’re talking to the guy who wrote bowling alone. For me but our book is very sympathetic which is very parallel to what Robert was writing. But we answer and talk about some of the other things that are happening – the morbidity, the pain, all these other things, lack of marriage, church but we tend to push it back to the labor market.

Wages of people without a college degree have been falling since 1972 in the US

Anne Case: So, the high water-mark for blue-collar wages in the US was 1972. And since then, wages for people without a college degree have been falling for men first, for women with a lag. But they’ve been falling now for a couple of decades as well.

Angus Deaton: They rise in booms and, you know, so it’s not like it’s been a continuous fall. It’s just that you get this ratchet in fact that they rise a bit in the boom and then they fall. And they never get back to where they were before. So, you know that the Trump boom which many people pushed as being, you know, the best labor market they’ve been in this century. Real wages for people without a four-year college degree were lower than any date in the 1980s.

Anne Case: So, part of that is certainly that there was globalization and there was automation. Those things were happening and certainly would have made local blue-collar workers more vulnerable. So, part of it is a policy decision about whether or not the workers who were affected were going to be retrained, whether or not the pie getting bigger through globalization was going to be distributed to everyone, or was going to be just distributed among the people at the top. So, part of that is policy in terms of what was going on, but the other part that’s different about the US is the way that we finance our healthcare system. And that plays an important role in the story in a way that’s kind of happening behind the curtain, because we tie health insurance to employers in the US which is highly unusual. If you combine that with the fact that the healthcare industry got larger and larger and more and more expensive. What that meant was that employers had to pay a larger and larger premium to hire any worker including those blue-collar workers and that came out of blue-collar wages. So healthcare went from being what it was, which was not much of GDP, back in, let’s say 1960, to being 1.5 dollars  by the time we get to 2020. What that meant was that blue-collar wages fell as more money was spent on their healthcare.

Angus Deaton: And also, the jobs went with it. So you know if you’re an employer and you have to pay twenty thousand dollars a year to hire a janitor or a cleaner. It meant that very few large firms in America have any cleaning staff, the mailroom is gone, the security staff, the food services workers, the drivers.They’re all contracted not all, but nearly all are contracted out. This is not contracted out to China or India, we’re talking about contracting out the local firms that supply labor.

David Blair: I was struck by a number that the share of GDP going to capital labor. Back when I was in Graduate School 30 or 40 years ago, that was considered fixed. You just take it as fixed and run with it. But it’s been declining. I mean the labor shares been declining, what is it, 7 or 8% over the last 30 or 40 years in the US, which is a big change. Can you talk about what’s going on there?

Angus Deaton: This is a very hot area in labor economics and those study firms, and there’s no agreement as to exactly what was forced players, so this is a permanent in economic analysis right now, and it’s not clear that the same thing is happening elsewhere. I’m working with a group in London and we’ve spent a lot of time looking at the British Labor Share and some people think it’s fallen. In the same way other people think it is not falling as much. But one of the themes in this work and I don’t really want to tell you the answer because I don’t think we know, is that power plays a much bigger role than economists used to think it did. Market power plays lot more. So there’s a lot of wondering about whether there’s a lot more monopsony with firms having power over their workers, a lot more monopoly firms having power over the product prices. And the decline in unions that has happened pretty much everywhere but has happened very fast in United States, so there’s almost no private sector unions left.

David Blair: I’m not  sure how much more competitive many market sectors are in China than in the United States. I just bought a car and it’s an extremely highly competitive market sector for cars here and the price is maybe 2/3 of the price of an equivalent car in the US.

Anne Case: So car dealers are very well protected in the US, right, so there are regulations of that help protect those sellers, which is, it’s not just cars. There are so many areas where corporations that and heads of groups have gone to Washington and gotten protection. So if you are working but within a protected sector, you do very well, but that means that the people who aren’t protected are paying the price for that.

Angus Deaton: We think that, not us but many other scholars too, have begun to think of Bachelor’s degree is the ticket into sort of a protected sector. And you don’t face competition. But just to examine on something you just said, which is very important. Our friend Thomas Philippon has written a book about price trends in Britain compared with price trends even in the EU. And he was someone who came from France to the US as a graduate student. And he was struck with cell phones exactly what you just said about cars. They were much better quality than were in France and they were much cheaper. And now in 2020, they’re not as good as in France, and there are much more expensive. And that’s true for a whole range of goods and, again if this is tending defeat this idea that American markets are just not as competitive as they are in Europe, let alone in China.

David Blair: So the lesson for Chinese regulations.

Wang Huiyao: I think we have started with a very good topic on these issues. I think what is going on in the lessons learned from US. You talk about all these factors, education, healthcare and the robotics, globalization. So we’re actually now having this pandemic and we could probably be going to see the situation that deteriorate further as time goes on that with other factors multiply. So the question I want to raise is on the future of capitalism, which is also included in the book. You have raised many interesting things in education. People with the 4-year undergraduate education have a better income level and also countries spending on healthcare and how they run the healthcare system are fascinating, as well as  the factors of jobs and technology come in play with globalization.

I think that is exactly how China probably is doing as well. The latest population census data that 218 million people among its population have a college degree or are currently in college, which means this is going to really help the future of them, so that’s probably one of lessons we learn from your book as well.

Second, health. It is really striking that the US are actually spending, according to the number you have, almost 20% GDP on the health system, whereas China spends about 5%, but China has almost 1. 3 billion people and some kind of medical coverage. And also that life expectancy of Chinese is probably only 2 or 3 years short of that of the US but now is quickly catching up. And also they announced that China has lifted 800 million people up extreme poverty.

And also, Chinese family values. There is encouragement from the family rather than committing suicide. So what do you think about what China has done? And what can be done to prevent history to be repeated in the future? You are the authority on that.

Anne Case:So there are several things to pick up on here. It’s a really fascinating set of issues. Just to start with education. Other countries don’t seem to have this strict divide between you have a college degree or you don’t and if you have a college degree, you are protected and your life is going well, whereas if you don’t have a college degree, it’s very hard to get married (in the US). It’s very hard to have a community life that’s meaningful. In other countries that’s not happening, so it seems like that is something that is in some way special to the US, and it may be that in other countries, there’s not stigma attached to having jobs, meaningful jobs that you need skills for but you don’t need a college degree for. So that’s one thing.

Angus Deaton: Well, this education thing is very hard and there’s a lot of controversy about it, too, but you know, what you were saying about the progress that China has made in educating people, that’s got to be good, you know, we believe in education, you know we are college professors. How could we not believe in education? Both of us grew up in pretty humble backgrounds, and for us, the educational system was our escape. It was what allowed us to move into success and the things we’ve done in our lives. So we’re not going to say anything bad about education.

Education gives people skills or allows latent skills to be expressed and that’s good for them, and it’s good for the country, and it’s good for everybody, so that’s a terrific thing, but there’s another role of education, which seems to be as a marker of social status. Having a BA in America seems to increasingly have become what the philosopher Michael Sandel has called it, the key to respect, key to social esteem, the key to a good job. And that has a big downside as well as upside, so we’re not going to badmouth education, but it’s more the role that this BA degree has come to play in the United States, so that I think has been cultivated.

Anne Case: I was going to say, also to pick up on something else that you mentioned, which was on values or family values. In America, among the conservatives, they like to point to the erosion of family values that people are no longer industrious and that people are no longer sort of like have a moral compass that says, we live in a family and we take care of our family. Instead, what we have our people cohabiting, they break up, they may have had a child in their first cohabitation. But though they have a new cohabitation, they have another child and their home life is just very, very fragile. But we kind of argue in the book that it’s much easier to be virtuous if you have a good job.If you have a job where you have prospects where there’s on the job training where you feel like you have a future. That’s much easier to kind of support a lifestyle that’s stable, if you feel that you have status, meaning in your work and you know that work is going to lead you to a good life.

Angus Deaton: This is sort of old Marxist belief that social relations depend on the piece of production and that seems to be what’s happening here, I mean, we see that disintegration of these times where people used to have a good working class, people call our jobs for working-class people as being behind this social disintegration.

“The threats to globalization today are coming from within countries, not from between countries.”

Wang Huiyao: I’d like to raise another question before I get back to David. One of the things you mentioned in this book about inequality. We notice inequality has been widely happening around the world as globalization deepens, we see inequality. For example, we notice that for example, the 1% of the US, elites or people in the top – their wealth is almost equal to 42% or 45% of the mass population and actually many developed countries have the same trend.

And as the companies going global, they’re not benefiting exactly well the home country or the host country. For example, NAFTA was blamed for hovering out the Midwest and not benefiting US. I was talking to Martin Wolf, what he was saying capitalism is global but democracy is local. So if the local is not happy, then politician needs to find a scapegoat for that and then China usually is to become a scapegoat very often. So what do you think about this inequality issue and where the gap is getting wider and wider in last several decades, and also even during a pandemic, I mean we see 1% is getting even wealthier, stock market is at an all-time high now, so how can we explain that and what are the true challenges for a contemporary wall?

Angus Deaton: So I think you have to be careful here to separate different kinds of inequality, right? So there’s inequality in income which is what perhaps we first think about it and the top 1%, mostly about inequality and income. And then what you were talking about at the end, there, which I think is becoming increasingly important and some politicians in the United States, like those with warrant, for instance, focusing much more on wealth inequality than income inequality. And as you say there’s been this enormous explosion of wealth inequality during the pandemic, much more so in the United States than in Europe for example. Because the US stock market is gone up so much and largely because the big tech companies are here in the US and it’s their enormous success during the pandemic, which has driven up those stock market.

But there’s also the inequality we write about in our book, which is the inequality of respect and of which in the US seems to come with education and to us that’s the deepest problem, because the people, these people without education have been sort of left behind, there, not politically represented and what you say is exactly right are telling that the major force today in international relations is what is happening within countries. That’s exactly like what Martin said about democracy is local and globalization is global. Well, the threats to globalization today are coming from within countries, not from between countries and we think it’s this, if you like disrespecting the separation or leaving these people behind who favor populist solutions that are the real threat to globalization, if you get another decade of Mr. Trump, it’s not clear how much will be left with globalization at the end of that.

Anne Case: Just to go back to what you said about NAFTA, speaking to some of the economists who were in the Clinton administration when NAFTA was passed, they knew the jobs would be lost in the West. But what they thought was that, well this is a good time for the US to upscale and so that those jobs would be lost, but those workers would be better skilled, they would retrain them and then that would lift everyone.

But what happened was NAFTA passed, the jobs were lost but the upskilling never took place so those people were sort of thrown out into the wilderness to fend for themselves. And that’s going to foment a lot of anger over a period of time when people feel like they’re not participating. There’re not one the rest of what they see as wealth increasing among themselves and they’re not getting any part of that increase in the size of the pie. So then that’s a failure also of democracy in the US.

Wang Huiyao: That’s a good point and also professor Deaton, you mentioned about education, of course, one of the positive fundamental factors that divide social status. We see the statistics as well.For example, more students coming from family in the top 1%  income than from the bottom 50%, two thirds of the students in Ivy League schools come from family of top 20% and also actually in the US the chances of students from household with more than 200, 000 dollars in income score above 14, 00 in SAT test is higher than those families that makes less than 20, 000 dollars. So you can see the income gap makes those differences even for education.The gap is big, would that be a problem for US to continue developing? Or Western countries in general.

Angus Deaton: But you know, Princeton, Yale, not the whole of the university sector and it’s not entirely clear that you got a huge advantage. I’m sure you get some and parents think that there’s certainly competitive and it’s certainly true that we know better, best, of Princeton, but Princeton made huge efforts to bring low-income and minority kids to Princeton, and very much changed the composition over the last 30 or 40 years. So I think we defend that record a little bit, but it’s really hard and for instance, I think they are probably now more successful – I’m bringing minority students and children of working class.

But there are many colleges, you know we spend our summer, a month in Montana and the State University in Bozeman, for instance, anyone who wants to walk in can get in.

So you don’t have to take exams and be let in and anyone can go and try. And of course they have to pay fees and that’s a separate problem, so that’s built up some debt from that.

A lack of respect for manual workers in the US

Wang Huiyao: I think it was still very strong. Among the world’s top 100 universities, US has half of that and attract talents around the world, making it a very innovative country. I think that probably is the core strength that US has. And I think China is also learning that . Of course, the China has over 3,000 universities and 35,000,000 students on campus in total.

So I think that education probably is, according to your study, really one of the key areas and China is paying a lot of attention to that. Perhaps I would like to have David to comment on that as well. You’ve been living China since 2016. And also you been contacted often because of your studies on the development of wages and all those labor economics and financing. So maybe what’s your take on that? You come from US where you lived for the last 67 years already.

David Blair: I’ll speculate about it for a minute. There’s one term that I hear in Chinese. That’s a term that they use for taxi drivers or for anybody that operates equipment or any sort of skilled jobs. Calling them“Shifu” is the way people show respect to a manual worker. And a lot of these people are much poorer than typical people at equivalent jobs in the US. But I don’t think they feel the pressure and the despair, although some of the delivery guys are usually young guys from the countryside. They work extremely hard very long days and they may be under a lot of pressure from their employers to do things rapidly.But even people working in the parks and stuff, I don’t feel like they think they are looked down upon. Whereas I think American working class people now think they’re just flat-out looked down upon and that naturally stocks anger and a feeling of hopelessness. Do you think that’s the right interpretation of what’s going on?

Anne Case: Yes, Absolutely. And that’s also something that separates you from Europe. Go and travel in Europe, there’s a lot of respect paid for people who do manual work that we don’t see in the US.

Angus Deaton: But it’s also true that some of what it’s common with Britain, too. So one thing that many people have written about it and I think it’s very important is people who used to work for Bethlehem Steel in Baltimore Prince News. The new book, called fulfillment is about Ampton, where my grandfather died in a mining accident in Yorkshire. In that village where my father grew up, that mine is no longer there. The unions are no repair the solid rock hard labor people who use the vote for the Labor Party are not there, they’re voting conservative and there’s an Amazon warehouse on the site where the mine was. Those jobs and many people have written how badly how hard it is to work in Amazon warehouse or so-called fulfillment but they are not dangerous like working in the mine and they’re not dangerous like working with steel works was and they’re relatively well paid, I mean, Amazon is paying something like $15 hour in US.

But there is a sort of sense of despair that this is meaningless work, working on a clock and these are more enter. This word anyway, though they’re more sociological accounts or individual accounts of people who live these lives written by them and there’s a feeling that the meaning of life is not what it was in those times and there’s been a lot of loss of society. Then useYorkshire mining times, there were these famous brass bands and there were famous soccer clubs and there was a social life built around those jobs dangerous and dirty, though they were, and there’s no similar social life built around an Amazon warehouse so I think that is happening pretty much throughout yesterday very much.

David Blair: The story that Bob Putnam told for his hometown in Ohio, too. One thing that worries me is the next generation. Once one generation loses their job and the children don’t get well cared, often with eating, or they have psychological problems when they are young so how do we solve this problem for the next generation? Do you have any thoughts on that?

Anne Case: That is a really good worry to have because I think it we are really worried about that as well that it.If you’ve grown up and your mother is addicted to drugs or your father committed suicide or you’re not in a stable home life. Also, the school that you attend isn’t as good as the school would have been a generation ago because the industry called out the tax base imploded and the school is not well funded right. The options for you for the future look pretty grim. I think this is a heavy lift.But we need to think about changing the educational system, which right now in America is lesser focused on. If you’re going to high school but you’re not college, you’re sort of on your own. So we need to think about ways in which kids, who are not going to go to university, are going to get a skill set.That’s going to put them on a good career track where they could become skilled plumbers or electricians or all of the different needs that we will have. And we need to be thinking about how we make that happen, but that’s going to be really difficult.

Angus Deaton: Actually, a lot of interests in that on both the right and left in the US on vocational education, of turning your system into something more like what you had in Germany and so on, so and also to come back to the drum we like to beat.

A lot of these local parties are paying or missing something money for health care. And it’s making very hard for them to fund local schools, local education, local universities.

David Blair: Just a point on China. There’s a lot of interest around China into looking at the German apprenticeship system. But I still think there’s too much attention, especially among parents and being sure their children, not forcing them to go to school 15 hours a day and that’s the slight exaggeration but it’s about getting on the sort of the Tsinghua university, Peking University track is very much.

Wang Huiyao: As Professor Deaton Professor Case just said, America had this phenomenon if people only went to high school and were not to pursue University, they maybe don’t have a very bright future. I assume that actually is happening in China as well, and also even people who are part of the vocational school or other specialized college want to go to university so that is not really healthy, but on the other hand, Chinese people work very hard.

There’s talk about 996- work from 9 a.m to 9 p.m for 6 days a week or something. I also want to get the 2 distinguished scholars; advices on this kind of a culture issue. How does that play in inequality or a country’s development and prosperity? For example, I was invited to bid farewell for the formal US Ambassador in China and he said actually, his impression on China is that these people are working very hard and are very diligent people. They have attached great importance on education and also they stick to family values as well. There’s a tremendous set of family values.

With the new population consensus, 10 years ago, there’s about 4 person in the family while now is about 3. So Chinese are also changing. So what I’m asking is that with the culture, China’s 5,000-year history. It was always trying to be neutral and inclusive. That is the same in country’s development as well. On equality issues, actually there’s a saying in China – they don’t mind that there’s not enough, but they mind very much if not really distributing fairly, so we have this redistributing upward – using your term – now we’re not trickling down the wealth of a Western country.

For example, so Chinese trying to avoid inequality, for example, decades of lifting 800 million people out of property, 10 years ahead of SDG 2030 agenda, UN’s number one priority. Cutting 70% of global poverty, just by China alone. So what do you think about this culture and historical factors and cultural factors?

Angus Deaton: I believe in these cultural factors, I grew up in Scotland. You would hear many of the same things you just said about China. We have enormous respect for education and very strong family values. Actually yesterday or maybe the day before I was talking to a group in the British Parliament and one of the Lords there who’s a Scotsman and said, what he has been worrying the most today was these family values that were so strong in his day seem to be weakening there. Just come back to my half joking comment about Marxism. Culture changes with the conditions of production and the those Scottish families were thriving within THE system, where there were jobs. And we have a friend, actually my brother in law, said that when he decided to go to college in 1972, his friends in New York in relatively poor area of New York’s whose parents were Italian immigrants, said to him: “why do you go to college? that’s the most stupid thing I have ever heard of. You are not using your diploma to pay the bills.” In Scotland that wasn’t the case, people really wanted to go to college. But these things change and in these times in America where there were good and so every country has been facing this change.

The change is always going to be the block, and it seems to be particularly badly handled in the United States. I think China has done very well. I mean youembrace the form of markets, form of capitalism, which generated enormous amount of wealth and relieved a lot of properties. But there are really dangerous there, too, because capitalism can get out of hand. David had said Chinese markets are very competitive. You got to keep it that way because it gets real dangerous when people get very rich undermining a competitive system, a lot of that seemed to happen in the US.

Governments should play an active role in restraining monopolies and rent-seeking

David Blair: Could I follow up on a question that Henry asked a few minutes ago? It is about the causes of this evolution. As I see, there are 3 major ideas. One is globalization. Let’s blame Mexico or then let’s blame China. But it’s competition in the labor market and that’s having a negative effect. Another idea is that its domestic policy changes. And I notice there’s a quote in your book where it says rent-seeking is a major cause of wage stagnation among working-class Americans and has much to do with the deaths of despair. I’d like you to elaborate on that and for our non-economists in the audience explaining what you mean by rent-seeking. And the third explanation is that it’s just technological change and automation and there’s nothing we can do about it. It could be a mix of those strings, but I’d like to know what you think the majority of the cause is.

Angus Deaton: I think, let’s take globalization. They’re very important that all countries are facing them on one side or the other. But you’re not getting the deaths of despair in most of Europe. And if you are audience – that’s a few words about rent-seeking. What businesses should be doing – making stuff and selling stuff to get rich from doing that and innovating and making us all better off. That’s a wonderful thing. That’s what capitalism is really good at and what markets are really good at. But there’s another way that people can make money, which is been thinking go to the government to get some special rule or regulation passed which makes them rich at the expense of everybody else and that’s rent seeking. And that is unproductive capitalism and the real danger in the story we’re telling is that in many industries of healthcare, among them they’ve been very good at getting special regulation passed which protect them from competitive markets, so that they can get rich at the expense of everybody else. And the story we tell which some people agree with and some people don’t, is that in addition to the automation and globalization, it is threatening the jobs of many working-class people in America. We’ve got this rent-seeking by the healthcare sector largely which is twice as large as anywhere else in the world. China inserts 5% of its GDP and we’re spending 20%, meanwhile Europe is 10% and they all have better life expectancy than we do so. This industry is not producing more health. We have the worst health of any rich countries in the world. The device manufacturers, especially the pharma companies are making enormous sums of money. And the trouble is that money can be used for further rent seeking.The administration right now is trying very hard to undo some of these things. Yellen is a good friend of ours and she studied our book. They all know about it but it looks like they can’t take on the healthcare.

Anne Case:And the hard part about the healthcare industry is that we don’t think that this is a sector where you want the free market to work. Arrow, who actually proved Adam Smith’s theorems about how a market can work and work well. When Arrow stared at the healthcare sector, he said the assumptions that are needed for it to be a market is not going to work. It’s not an industry that can work well as a free market. This is an industry in which there’s going to have to be a government to help organize what happens within that industry. We think that the health care industry have to set aside differently from, for example, hairdressers. In the state that I live in, you need a license in order to cut someone’s hair. So that’s going to protect the people who were able to get a license, and it’s not just people who cut hair, it’s people who do a lot of other things are protected in a way that keeps some people out. But the healthcare sector is a little bit different.

Angus Deaton:I think we understand the benefits of markets. We’re not anti-market. China really began to get rich when they deregulated markets or deregulated agricultural markets. We’re all in favor of but you need a muscular government to regulate, abuse will happen if you don’t.

Wang Huiyao: I think you have just said something very profound. Exactly, you have spent 20% on the healthcare but China spends 5 or 6%. As you said, government should play a more active role in terms of public goods areas. Your book shows there’s a different form of capitalism, such as casino capitalism, rental capitalism, crony capitalism, democratic capitalism, state capitalism. What is the ideal form of capitalism? China has market economy which consists of 65% private sectors, 15% multinationals and 20% state-owned enterprises. What is the best form of capitalism and how that can work well with government and then serve the people well at the same time?

Angus Deaton: The struggle of people to make money is a very powerful force. Some people just called greed for it, but you have to channel it in ways that are socially productive. And there’s always danger and there will be danger in China, too. Because the people are very good at that. Good innovation is a big part of the story to my friends who is a paleontologist writing a book about creative destruction. That’s another thing that capitalism is very good at it, comes along with its new ideas and these new ideas push aside old ideas and all previous people were making a lot of money now lose money so there’s a lot of this churn going on. The danger is that people who got powerful from one set of innovations will try to stop the next round of innovation and that’s not something just to do with America or to do with China or to do with England or whatever. That’s always going to happen and it’s always a danger in any system. But the people who do very well at one round are gonna stop the people at the next round from doing things well. There are famous Chinese stories. Zheng He，who is this leader of the enormous fleet of ships that were the greatest ships in the world that make the Mayflower look like an insect. And they sailed all the way to East Africa and saw and when they came home the Emperor just put the ships way instead. You’re never going to sail it and use those ships again. So there was this potential innovation in the 15^th century before Columbus came to America. It was chopped off because people in power were scared of and that is what we see in America all the time. New innovations are choked off because the previous people don’t want to see them. So you gotta let markets work for people but not for the capitalists.

Anne Case：Part of that is if you want this to evolve as there is creative destruction, there are going to be people who lose. If you want this to be able to evolve peacefully, which means a safety net for the people who lost when there was this kind of innovation taking place. I think one of the things that happened in the US was that there’s real pushback against helping people who lost when there was globalization or innovation. Something happened and your good job disappeared. You can play the game that well. But that’s going to give ways to sort of a peaceful transition to live better economy. I think we have to think about social safety nets as part of running a market system.

David Blair: I wanted to follow up with a couple of specific questions that China is actually dealing with right now. I went to graduate school in the late 70s and the deregulation movement was in its heyday. People in antitrust policy were arguing that you really don’t need an active antitrust policy, because the market will take care of that and people argue that we can just deregulate the financial system and they can assess their own risk and that’s no problem. And China are sort of assessing where to go with both those issues. I wonder if you could talk about those issues, and whether you think they were a major cause of what’s happened in the US economy over the last 40 years.

Angus Deaton:I think they were right then but wrong now. It wasn’t like that, whole thing was crazy, because regulations also generate a lot of rent-seeking. I knew Stiglitz when I was young and he noted the regulators getting captured by the regulators that people are supposed to regulate and then they both joined together to exploit the people. So that deregulation generated a lot of growth in its time. But the situation now – I think there’s a widespread agreement and this is one of these areas of permanent in economics – everybody thinks something needs to be done with the big tech companies and that how you regulate those to retain incredible benefits. I think China is struggling with that. Those companies are very big and powerful and they’re bringing huge benefits to us but we’re scared of them and what they might do in the future.

David Blair: There are more competitiveness in China. Alibaba is the equivalent of Amazon but there are lots of competitors such as JingDong and you really have Amazon by itself in the US.

Angus Deaton:I’m not an expert on China but my sense is the Chinese government is very active and prevents those big firms getting too large. I like Amazon so much that I think it would be great if there were 2 or 3 of them. I’m not sure that the world needs Twitter and Facebook at all but that’s just my personal views and I think China has done well in that respect and we need to do something here, too.

Anne Case：But whether the financial markets can assess their own risk or not, we can just let that roll forward without anyone. I think we’ve seen what that led to in the US which is people lean out into the wind and they fall over and the US has coming to shore them up because we can’t let them fail. So I think it’s kind of naive to think that this is an industry that can just manage that on their own.

Angus Deaton: I agree with that. But again, what you talked about – in the 70s wasn’t entirely wrong and we got benefits from but it went too far and these things sort of go through cycles. But there’s something that’s going to change and I think both China and the US and everywhere else are wrestling.

David Blair: I certainly believe the right deregulation at that time. I want to quickly mention a conversation I had with a regional president of the Bank of America few years ago which really stuck with me. One thing he said was I don’t want you as a customer, and the main customer I wanted is somebody who bounces a few checks and pays a lot of fees every month. Then I asked him what about lending to small businesses? He said we’re really not interested in that either, unless we get fees from them. So the traditional role of the banking system, which back in the 1970s was lending to small businesses and homeowners, has been completely turned on its head.

Angus Deaton:And a lot of them got into hedge funds in a big way too. And it wasn’t a lot of the hedge funds are playing with their own money, but there were banks to get into that too, and basically we’re doing it with our money and that sort of thing I think was a real disaster, too.

Anne Case: I think there has been some progress made in trying to protect people from things like your manager at the Bank of America. So it’s again a case where you can still let the market go. And it’s going to take care of itself but we do need people there to be protected, the small people along the way. Without that, we will end up in a real dystopia.

Wang Huiyao: Yeah, I think that what we’ve been discussing is really interesting. American government was really small. But now we see the Biden administration is massively spending on the pandemic, 2.3 trillion dollars on the infrastructure and the government is also launching all kinds of big programs. And other countries do the same things, such as European countries. China has very active private sectors, multinationals and SOEs which fulfil the obligation of the poverty alleviation. The world is learning how we can strike the right balance. Capitalism is thriving, but on the other hand, is not getting out of hand. It’s a new challenge for all of us. If you don’t handle that well there will be a day globalization can be the scapegoat and China is often being the scapegoat also. So I think how can we really strike that balance is really interesting for economists to study.

Angus Deaton:Yeah, it’s funny as one of the things that’s happened in the US is that the countervailing power of democracy has much weakened, because the rent seekers largely spend on taking over the government. But that’s not entirely true. And there used to be very little lobbying by firms in Washington and that’s been exploding over the past 50 years and I don’t think it’s coincidental and that’s the period over which the profit share has gone out and worker share has gone down.

Now, you have a much more muscular government that tends to be independent or more independent of industrial interest or banking interests or whatever I don’t know. Big tech is not industrial anymore. That separation is very important, and democracy is supposed to be able to do that. But it’s not been doing it very well in the United States and that’s not just in the United States. A lot of people in Europe with the development of populist movements and so on who feel that they are not well represented by parliaments who are dominated by people who have done well with globalization and were better educated and have very little respect for their traditions or ways of life.

Wang Huiyao: So for the well-being of the community, for example, in terms of fighting pandemic, people even maybe sacrifice a little bit of the individual freedom, as people follow the lockdown now get a better economy now. China has a great number of country areas and cities and they all compete with each other at all levels so that every mayor takes responsibility to the well-being of the of its citizens. That’s why I think high economic growth happened. But I hope that China’s innovation can catch up as China is still a relatively late comer. So in terms of the globalization from which China benefits enormously – this is the year of China joining WTO for the 20th anniversary. So what’s your take on globalization? And if China peacefully rises, how can China, US and the EU work together towards a better economic prosperity ?

Angus Deaton:Yeah, I agree and I think we’re in a really worrying situation where there’s a real danger of throwing out the baby with the bathwater. You swing away from complete deregulation to something where you have total regulation. There’s a lot of people in America who don’t believe in capitalism in any form anymore and I don’t think they’re powerful enough to do huge damage, such as populism, in America.

Anne Case: When you first study economics, what you were taught is that there are gains from trade and that’s a good thing and indeed what we’ve seen is the pie getting bigger and bigger. But as the pie gets bigger and bigger, the question becomes, how does it get distributed, by who wins or who benefits from globalization? Few people get very wealthy from this increase in the size of the pie that globalization brought. But a lot of people’s lives were damaged, and their communities were destroyed, and their families saw no prospects for the future, and no one took care of that. So I think you need to make sure that things continue to work for the polity as a whole and if you don’t pay attention to that, if you don’t tend that garden, then bad things can happen, as we’ve seen happen in the US now.

“Each country should really think about how to handle domestic issues with innovation and new technology.”

Wang Huiyao: So maybe each country should really think on how to handle domestic issues with innovation and new technology. For example, I’m pleased to see President Biden planning to revitalize the infrastructure of US. Also in China, the infrastructure revolution is everywhere, such as the high-speed train. That also helps with poverty alleviation in China. So if we all really concentrate on our domestic issues rather than blaming each other, maybe that is the way to go. We hope that we will have better communication and have a cooperative partnership, which is mentioned by Allison, Nye and Friedman. Let’s have a cooperative rivalry partnership rather than a geopolitical or strategic rivalry. One thing I want to say is that I have this book translated into Chinese to understand consumption, for which you won the 2015 Noble Prize. Consumption is very important and China wants to be a consumer society due to the dual-circulation. Domestic consumption is now emphasized. One of the things for China is blamed is that China took away a lot of jobs, but we know that Walmart and others has purchased so much goods from China and has helped keep US inflation low for the last several decades. Even though there could be a little job loss. But China also benefits US economy in terms of buying trillions of the treasury bills and products. We benefit from each other and we should really have a more peaceful narrative.

Unfair taxation enables inequality and the rise of populism

Another question would be from China Business Network. Would a wealthy tax help to combat the gap between rich and poor? And do those policies introduced by Biden demonstrate an indication that the year of a big government is back in the United States, as Biden is raising the minimum wage and also proposing a flat tax for the global operations?

Angus Deaton: I think it’s really a time that large corporations like Amazon and FedEx actually paid any tax. And I think that’s certainly one of the things that fuels populism. There is a feeling that the people at the really top are not paying very much tax. And I’m certainly very much in favor of international negotiations to set a minimum corporation tax for example. So that you don’t get this enormous distortion of companies moving around and pretending to be headquartered in Ireland or in the Cayman Islands in order to avoid taxes. That’s a problem. You got much less than we do, and I think that’s been very corrosive. It’s been hard for the government to collect taxes, it needs to do things. And it’s also seen as manifestly unfair and contributes to populism, and we need less of that.

Wang Huiyao: We have another question from China Radio International. Many people talk down capitalism. French President Macron said during the virtual dialogue of 2021 summit of global leaders that modern capitalism can no longer work. So, what’s your opinion about that and how we can really compare the future global governance related to the capitalism in future?

Angus Deaton: I think what Macron is saying, is that it doesn’t work in the way it’s working right now and I think those are the issues we talked about which is rent-seeking and all the rest of it and we need a strong government. That will be a countervailing force on behalf of people for the excess of capitalism, not to abolish it. And it’s very hard to know what abolishing it would mean.

Wang Huiyao:So again, I know this is really a fascinating discussion. My staff was telling me that about 800,000 people are watching. So it’s really amazing. So, what I would say is that we had a very interesting discussion, and I think that US and China as the 2 largest economies, there are a lot of things to learn from each other. And of course, that the books and the theory you proposed are very interesting, relating to education, healthcare and also capitalism and we can really do with equalities. That’s really so important. China has to be aware of that, too, even though China has lifted 800 million people from extreme poverty, the latest population census shows that population is aging, which could be prevented. So you have offered a lot of valuable lessons and advice for us. So, to conclude, maybe each of you can say few words to our audience. And for the sake of this discussion, how can these two countries work together and maybe have a better future together?

“Countries need to put their own domestic house in order and not blame outsiders for what’s happening.”

Anne Case: I think you’re exactly right. I think we need to look at the parts which are good and not throw those ways. We need to work to build on these successes, but I think a lot of the problems with globalization going as far as it has are domestic problems– about how we take the benefits of globalization and distribute them locally within our own countries. And if we focused on that, I think we could make quite a lot of progress.

Angus Deaton: Yeah, I think that’s a big message, in the next 5 or 10 years, which is that countries need to put their own domestic house in order and not blame outsiders for what’s happening. If they don’t put the domestic house in order, if they don’t look after the people who’ve been left behind – that’s domestic issue, a policy issue. It is something that governments have to be able to do. They run the risk of terrible things happening domestically, but also really bad things happening in dimension that caused those people. being exploited, then they will look for scapegoats and they will blame anyone who happens to be around, whether it’s China or automation or artificial intelligence or whatever. If you have a large fraction of your population whose life expectancy is low – really bad things are happening. That’s a domestic problem. We got to fix that because otherwise America can’t really participate well.

Wang Huiyao: That’s very stimulating and sound advice. I agree that it’s not only true for the U.S., but also true for China and for many other countries. We got to take care of old people and we have to do own domestic public works and in fact, international politics, too. So, we have to concentrate on domestic issues and handle our own situation well. That’s absolutely wise advice for all of us. So, David, your last words?

David Blair: I thought this has been a very great conversation. I wish we could go on for a few more hours. I have tons of questions to ask you. You mentioned when we first talked that you had some ideas about how the pandemic is affecting deaths of the despair and I want to just give you a chance to mention a little bit of that before we leave.

Angus Deaton: Well. We’ve just been looking at the pandemic which had been hard to get data on. The stunning thing is that the people who suffer worse are the same people who were suffering before. And it’s not obvious that would happen, because the causes of the deaths have changed. It didn’t used to be risky to work in a grocery store. But now it is risky to work in a grocery store. But this sort of protection that you get from a bachelor’s degree seems to be strong against the pandemic as it was before. So one of the things, the ways that I like to put it, is having a BA if you’re a white non-hispanic, in America, is about as protective as the Johnson and Johnson Vaccine. It’s about 75% effective. And, of course, we know sort of why it is happening – those of us who have BAs are all staying at home, we kept our jobs. Nothing bad happened to us, but it’s always the same people who benefit from the same people who lose. The pandemic has not really changed that pattern.

David Blair: Great. Thank you for dealing with the issue which is one of the most important issues facing the United States and maybe the rest of the world and I really appreciate your contribution to this small dialogue.

Angus Deaton: Thank you too, for giving us this amazing audience. It’s just wonderful. Thank you.

Wang Huiyao: Thank you, Professor Deaton, Professor Case, such a fascinating discussion that we had, and I really appreciate your advice at the end and throughout the conversation, the theories and examples you gave. You theory is applicable to many situations, including not only the US’s but also China’s education, health, and to solve inequality and also concentrate on domestic issues. So, that’s great. Once again, on behalf of CCG thank you, you were wonderful. We also want to thank all of our audiences who were turned in on this.

It is a great discussion across the Pacific virtually. We know that you are in Princeton where it’s so early in the morning. Once again, thank you so much. We hope to see you again, in Beijing, thank you.

Angus Deaton & Anne Case: Thank you very much. Thank you, friends in China.

Note: The above text is the output of transcribing from an audio recording. It is posted as a reference for the discussion.