Globalization connects the world and creates endless possibilities. But globalization is not a win-win scenario for everyone. How are your personal finances affected by a growing global economy?
Professor Angus Deaton, Nobel Prize-winning economist and Professor Emeritus at Princeton University, joins the show to talk about the effects of globalization on the economy. He explains why there is still a clear division between the “haves” and the “have-nots,” and how we can even out the playing field.
Professor Deaton says our education system may be part of the problem, and that technology could correct economic inequalities.
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Watch Does Globalization Help or Hurt the Economy… and Your Savings? on YouTube.Read the Transcript
Interview with Angus Deaton
Professor Angus Deaton is the winner of the 2015 Nobel Prize in Economics and the author of The Great Escape: Health, Wealth, and the Origins of Inequality. In his show, he discusses economic challenges, inequality, and the need to address the working class.
Douglas Goldstein: I am very excited to have back on The Goldstein on Gelt Show, for the third time, Professor Angus Deaton. He won the Nobel Prize in Economics, and he is now a senior scholar at the Woodrow Wilson School of Public and International Affairs. He is also a professor emeritus in the economics department of Princeton University.
Is the Economy Good News or Bad News?
Douglas Goldstein: Professor, one of the problems a lot of people have with looking at finance today is understanding what the numbers are saying.
You have people who look at the stock market and feel pretty good about it and they believe that globalization is helping. Then there are other people, in fact like you, who point out that it’s not really helping and it’s a bit of a myth. What’s really going on here?
Angus Deaton: Both of those things are true. Globalization is helping some people and hurting others, so it depends on which of those you look at.
If you’re one of the guys who’s well-educated, benefitting from globalization, who lives in this modern open-borders-world and can travel and can make money, generally living in this cosmopolitan universe is wonderful.
Guys like you and me, your pension wealth is probably invested in the stock market and that’s doing well for you, too. But if you’re someone who 40 years ago could get a job working in a steelworks, easily get promoted, become a blue-collar aristocrat, get married and have kids, those jobs have gone, thanks to globalization.
The problems of globalization are not that it doesn’t work; it works for some, but it doesn’t work for others.
Tackling Inequality in a Globalized Economy
Douglas Goldstein: The way you describe it, it seems some people, like you and me, have opportunities to do things while other people simply don’t have opportunities.
Would it be a good idea to try and increase the number of opportunities that people have, rather than, say, the number of benefits that they receive?
Angus Deaton: I think that would be right. Perhaps having a little more in the way of benefits would be a good idea, too. But more importantly, we have got to increase opportunities and reduce the inequality gap.
The division here in the U.S., and I think in much of Europe, is between people that are well-educated and people who are not. People who have a university degree and people who don’t - what you might call the exam-passers on the one hand and the exam-failures on the other hand.
That doesn’t necessarily mean that the solution is for everybody to go to college. I think our educational systems, especially in the U.S., are not doing very well in educating those who don’t want to go to college, in a way that will make them productive and useful citizens.
The Germans seem to be much better at it than we are.
Does the System Favor the Elite?
Douglas Goldstein: One of the things you said is that maybe getting some benefits could help. In my day job as a financial advisor, I have observed that wealthy people spend a lot of their wealth on their kids, but the poor see no obligation to give financial support to their grown children.
I had an unusual meeting the other day with a couple that is quite poor. I say unusual because I normally meet with people who have money, but this couple had got an inheritance and this was their first time dealing with it.
When I asked whether they were planning to use some of this money to help their seven children, they were surprised at the question. They said they had no such intentions because their children are grown up and self-sufficient.
That is a contrast to some of the wealthy people I know, who are always helping their kids, and their kids are always dependent on them. I see this in the micro level, but do you see this in the macro level as well?
Angus Deaton: I think there is an argument along those lines. I think it’s certainly true and again, I know the U.S. best. The wealthy elites are prepared to spend unlimited amounts of money to help their kids do well and to join the wealthy elite, too.
That has the downside in that it makes it very hard for smart kids from not very wealthy families to go to the same schools and universities that the elite send their kids too. I think it has become much harder than it used to be, so there’s a real worry that that mobility has been cut off.
The trouble is, although a lot of good work suggests that mobility has been cut off, we won’t know for sure because we have to wait a long time to find out whether that’s happening.
Creating Opportunities for the Working Class
Douglas Goldstein: You’re saying that people who may not have the money are not going to the schools, but on the other hand you think that the higher education isn’t helping people to progress in life?
Angus Deaton: It depends again on who you’re looking at. I think the elite colleges in the United States have been very good at letting in people that they didn’t used to let in in the past, like women, Jews, Asians, African-Americans, and minorities of all sorts.
However, there’s one group missing; the white working class. I think it’s very hard for the white working class to find a place in those colleges. If the college has a very huge amount of money, it is better at giving opportunities to the white working class.
Harvard and Princeton try very hard to expand their intake in those dimensions. But for an Ivy League that has less money, it’s very hard because there’s huge pressure to get in minorities and they make up the rest by having rich people pay double rates for their kids, and that’s not leaving a lot of room for the white working class.
Addressing the Vicious Cycle at the Bottom of the Pyramid
Douglas Goldstein: Professor, I want to dive into some of the research that you’ve been doing more recently, which seems to indicate that people who don’t have enough money, are ending up with many more troubles, other than just not being able to pay their monthly bills.
Is this something that as individuals, we can do something about?
Angus Deaton: This research is relatively in its infancy, but what we discovered is that for these people who are not very well-educated, that’s people who don’t have a BA, once they get to middle age and their 50s and so on, not only are they financially strapped but their health is deteriorating, and a larger number of them die from suicide, drug overdose, and alcohol abuse.
We don’t see very much of this in other countries in the world, and that’s one of the reasons why you can’t easily ascribe it to the financial crisis.
You can’t easily ascribe it to globalization either, because all the rich countries are facing that in one form or another.
Maybe it’s that the U.S. doesn’t have so much of a safety net. It may also be that anti-labor laws and policies have a much older history in the United States than in much of Europe.
Douglas Goldstein: What do you attribute these problems to?
Angus Deaton: It could be due to a slow collapse of working class life over the last 40 years; the jobs that I talked about before. The steelworkers’ jobs, the jobs that you could work in manufacturing, could get a steady pay increase, you belonged to a union, you had some control over your life at work, and the unions had some influence in national politics.
By and large, that picture of working class life is all gone and a lot of it is under the pressure of globalization and of technical change, but this almost complete elimination of unions is unique to the United States.
A lot of the anti-labor practices that exist here are unique to the United States. There’s a lot of concentration in industry going on, and I think that it continues to slow down but I think it’s also contributing to workers not doing so well.
Are the Current Economic Challenges Simply the New Normal?
Douglas Goldstein: A lot of times, there have been major changes in the world economy, whether it’s going from an agricultural to an industrial economy, or what we’re perhaps seeing now, which is a more automated economy and less of a need for the types of jobs that you’re describing.
It seems to me as though one way to look at it is to say how terrible this is, and all these people are suffering, and the other way is to say, maybe it’s time for a new opportunity. Maybe we don’t all have to say there’s such a huge value to getting a BA.
People could be looking at training schools or other types of schools that we haven’t even thought of yet, because the whole education system is confined to a very traditional system, the way it’s been for a hundred years.
Angus Deaton: I agree with that very much, and I think that’s exactly what should happen. Whether it means we are responsible, or whether a spontaneous social organization will produce these changes, I don’t know.
What’s interesting is, if you look back at the Industrial Revolution, the historians are still quarrelling over whether ordinary people benefitted from that, or at least over how long it took for them to benefit. Perhaps they will be the better for it in a hundred years.
If you look at that as your example, the Industrial Revolution wasn’t all that great for many people, for many years. To think that what’s going on is a basic change in the way the world works, is a very pessimistic outlook.
Have a More Positive Outlook for the Challenges We Face
Douglas Goldstein: You’re saying that there will always be people against change for whatever it is, because they may have their own interests in mind or because they can’t just imagine a newer world.
But on the other hand, I think some people are more optimistic about the future. I read a book recently by Peter Diamandis called Abundance. Peter Diamandis is also a former guest on The Goldstein on Gelt Show; you can see the video on YouTube if you like.
He is one of the most optimistic guys in the world. He keeps saying how wonderful things are. It’s almost like we need reminding because sometimes we get mired in the feeling of doom and gloom. Nothing personal, but talking to you, I’m getting a little worried.
Let me read what Peter Diamandis has to say: “There’s great improvement as long as people have the opportunity to be free and to actually pursue it.”
Is there a reason to be optimistic that technology is giving us such great opportunities, or are things just not moving in the right direction?
Angus Deaton: What you attributed to Peter Diamandis, you could well have attributed to me. In the first interview we had, we talked about my book The Great Escape, which is all about how the world is a wonderful place, and the world is better now than it’s ever been in human history.
We tend to forget this when we focus on all these negative things we’re talking about. I tend to say the world looks terrible right now, but it’s better than it’s ever been, and those two things are entirely consistent with one another.
There has been all this human progress over 250 years, but it’s not been uninterrupted and there have been awful things that happened along the way which were just horrendous setbacks.
The Holocaust is perhaps the most obvious of them, but never mind two World Wars, the Great Leap backwards in China, which killed upwards of 30 million people, the HIV AIDS epidemic, and so on.
You can be an optimist, and I am an optimist, but you don’t have to be stupid as to think that nothing bad can ever happen. Bad things can happen and have happened, and are often quite prolonged.
What we rightly worry about is that we have to think our way through the setbacks that are happening. They may not be of the horrendous nature that has happened at the worst in the past, and they’re sort of limited, but there really are things to worry about.
Populism Is Not the Right Solution
Populism is not a good way of going forward on these things. Populism is a way of making things worse, not a way of getting out of the dangers we are in now.
Douglas Goldstein: Isn’t populism just a way of people saying, “We’re fed up with the systems that are simply not working and haven’t been working for decades, and we’re angry, and we want something new?”
Angus Deaton: That’s understandable, but putting Donald Trump in charge of the world is going to make things worse, not make things better. Though you can understand these revolts against where we are now, you don’t want the revolts to take the form that breaks everything to the point that we can’t get back to where we were. Rather, we should be looking for ways to satisfy that anger yet take us back in a positive direction.
Douglas Goldstein: This is getting so political! Gordon, one of the advisors to so many entrepreneurs, always says, “The job of the entrepreneur is to look at the company and break it.” I’m not trying to attribute Gordon’s advice to Trump or to anyone else, but he says you have to look at whatever systems are in place, and realize that you can completely change and make something better.
Angus Deaton: This destruction is the way we think of entrepreneurs working, and of technical progress being implemented, but I don’t think the same creative destruction is a good idea at the level of a whole nation.
You don’t want to break Europe, and you don’t want to break the United States, in order to have a better future. We may have to change some of the institutions, but that’s very different from a wholesale collapse.
Douglas Goldstein: Professor Deaton, I know you write a lot about this, and you’re out there quite a bit. In the last few seconds, tell us how people can find you and find your work.
How to Follow Angus Deaton
Angus Deaton: You can Google me. I’m very apparent and very easy to find.
Douglas Goldstein: Thanks again for coming back on this show. I look forward to speaking to you again soon, and best of luck.
Angus Deaton: Thanks very much. Good to talk to you again. Bye, bye.