confessions of a nobel prize economist

Angus Deaton Said Oops: Economics Needs a Rethink

A recent piece by Nobel Prize-winning economist Angus Deaton reads less like an academic argument and more like a confession. Titled “Rethinking Economics”, the article doesn’t tiptoe. It opens with the blunt admission that economists have had a vested interest in preserving capitalism as it currently functions—a system that, as he later argues, is deeply flawed and increasingly disconnected from the lives of ordinary people.

Deaton argues that economics today is in disarray due to some fundamental failures. He outlines three of them:

1. General ignorance of the importance of power

“Economists’ overemphasis on the virtues of free markets distracts them from the influence of power in setting wages and prices, directing technological change, and influencing politics. And without understanding power, it’s hard to understand inequality or much else in modern capitalism.”

This isn’t a new critique—but coming from Deaton, it hits different. For decades, mainstream economics has championed models that assume perfect competition, rational actors, and frictionless markets. In that universe, power doesn't exist—only prices. But real economies aren’t frictionless. They’re full of power asymmetries: between employers and employees, corporations and consumers, governments and citizens.

A clear example is Big Tech. Companies like Amazon and Google shape not just markets, but labor practices, supply chains, and even public infrastructure. Uber redefined transport while avoiding labor laws; Facebook altered political discourse without accountability. Economists at NBER have shown that market power lets firms set wages below competitive levels, dampening labor movement and extracting surplus from workers  Even in online gig work—like Amazon Mechanical Turk—a 10% wage cut leads to only a 1% fall in supply, suggesting employers have real wage-setting power

2. Philosophy and Ethics

“In contrast to economists from Adam Smith and Karl Marx through John Maynard Keynes, Friedrich Hayek, and even Milton Friedman, we have largely stopped thinking about ethics and about what constitutes human well-being.

"Economists are so focused on money and consumption. They fail to understand what actually matters to people, like what creates human happiness and well-being.”

That’s a shift away from the norms established by the likes of Smith, whose Theory of Moral Sentiments emphasized sympathy, virtue, and social trust. Deaton argues that the discipline has since veered into a kind of mathematical reductionism—where consumption is king, GDP is gospel, and the human condition is a rounding error.

“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. When pressed, we usually fall back on an income-based utilitarianism.”

Meanwhile, America—where many of these theories originate—is grappling with record-high inequality, a declining life expectancy, and a loneliness epidemic. Suicide rates are up. Opioid addiction is rampant. Yet the stock market is thriving.

Even mainstream economists like Joseph Stiglitz and Amartya Sen have argued for alternative metrics—like the Human Development Index or Bhutan’s quirky but thoughtful Gross National Happiness model—because consumption ≠ happiness.

Behavioral and well-being economics are gaining traction, but they remain peripheral. Deaton’s call is for economics to return to its roots—not just as a science of efficiency, but a moral inquiry. Not just “What is efficient?” but “What is good?”

3. Efficiency

“Many subscribe to Lionel Robbins’ definition of economics as the allocation of scarce resources among competing ends or to the stronger version that says that economists should focus on efficiency and leave equity to others, to politicians or administrators. But the others regularly fail to materialize, so that when efficiency comes with upward redistribution—frequently though not inevitably—our recommendations become little more than a license for plunder.”

“Keynes wrote that the problem of economics is to reconcile economic efficiency, social justice, and individual liberty. We are good at the first, and the libertarian streak in economics constantly pushes the last, but social justice can be an afterthought.”

Here Deaton is explicit: the idea that economists can simply optimize for efficiency and "leave equity to the politicians" is naive. In practice, equity often never comes. What’s left is a form of intellectual laundering: policies that claim to be neutral are anything but—they disproportionately benefit the powerful.

Following Deaton’s view, it can be argued that mainstream economists—imbued with neoliberal doctrinaire views—often combine extremely simplistic assumptions with extremely complex mathematical models to provide empirical evidence in support of their ideological position, but with no relevance to the world where people live their everyday lives.

He wraps up the article with a couple more bangers:

• His change of heart on unions. He used to think they were a nuisance—but now sees them as vital.

“Their decline is contributing to the falling wage share, to the widening gap between executives and workers, to community destruction, and to rising populism.”

• His change of heart on globalisation.

  
  

He also said that he no longer buys into the narrative that trade has been a driving force behind poverty reduction in India. Despite NITI Aayog's (it serves as the apex public policy think tank of the Government of India) claim that the proportion of poor people in the country declined from 24.8% to 14.9% during the period from 2015-16 to 2019-21, a new study published this month has claimed that wealth disparity is at its highest in decades. India's richest 1% of the population earned 22% of the country's income and owned 40% of national wealth during the last financial year.

The study further claims that wealth distribution is now more unequal than during the British colonial rule. Despite the claims of continuing robust economic growth and being poised to be the third-largest economy in the world within the next three years, GDP per capita (nominal) stood at only US$2,612 in 2023, making it 140th in global ranking in terms of per capita income during the same year. Only 12.3 per cent of an estimated 471 million workforce in India have regular jobs with some form of job security provided by laws; others are just surviving under various forms of informality. However, NITI Aayog data on poverty reduction has also been questioned by a number of academics and researchers on methodological grounds, both within India and outside.

Final Thoughts

Deaton did a full send on this one. Reading it was super validating—it signals that more economists are waking up to the idea that free-market capitalism is not the solution to the world’s problems. It may, in fact, be the cause.

And for those of us frustrated with the status quo, all of this gives me hope for better economic