Book Review: Deaths of Despair and the Future of Capitalism
The authors start with a puzzle: after many years of declining mortality rates, White Americans in midlife have seen a significant increases in mortality rates in recent decades. This trend is not seen in other rich countries, though there are bits of it in the UK and especially in Scotland. A closer look shows that this increase in mortality is almost entirely confined to those without four year college degrees.
The increase in mortality is not the only sign of social dysfunction seen in this group. Rates of marriage, home ownership, voting and church membership have decreased, while out of wedlock births and damaged families have sharply increased, to name just a few of the many indicators cataloged by the authors.
So what is killing the members of this group? The major role is played by what the authors call deaths of despair: suicide, drug overdoses, and alcoholism. The drug overdoses in particular were promoted by a specific set of bad actors, the major pharmaceutical manufacturers who relentlessly promoted the use of opiates for all kinds of pain, even when it was obvious that they were promoting an epidemic of addiction.
More generally, though, they trace the loss of social stability to the loss of the kind of stable high paying industrial jobs that gave working class lives a solid middle class lifestyle. These jobs were destroyed by a combination of international trade and automation, with a lesser role played by immigration.
One of the central villains in the story is the US system of healthcare, which is by far the world's most expensive and least effective among the advanced countries. What it is good at is funneling immense amounts of money (18 per cent of US GDP) into the hands of health care providers. These providers, including hospitals, pharma, and medical personnel have been spectacularly successful in promoting a series of rent seeking strategies.
The authors note that the excess amounts (compared to other advanced countries) amounts to a huge tax on the economy - a tapeworm, said one prominent investor, more like a cancer, say the authors. This tax destroys jobs, cripples innovation, and depresses wages.
Rent seeking is a major disease of the US economy. Key tools of this kind of rent seeking were already understood and condemned by Adam Smith. Wealthy industries, individuals, and trade associations lobby the government for protections from competition. Examples - the medical associations restricting enrollment in medical schools (and making sure that they are extremely expensive) and residencies, enacting rules to prevent entry of foreign doctors. Unreasonably long or restrictive patents legalizing rent seeking is another. These are all facilitated by immense sums spent on lobbying and the US campaign finance system which depends heavily on contributions from corporations, trade associations and wealthy individuals.
The authors have some suggested fixes: universal healthcare with regulation of rent seeking, with lessons from the experience of other wealthy countries, higher minimum wages, regulation of monopsonies - conspiracies in restraint of wages, and largely unspecified educational reforms. Almost all of these are intended to promote more competitive markets, with healthcare, where it has long been proven markets laissez faire does not work.
The authors are long time economics professors at Princeton University. Deaton is winner of the Nobel Memorial Prize in Economics.