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The economics of despair

LiveMint logoLiveMint 08-05-2017 Sumit Mishra

If inequality was the talking point across the globe three years ago, poverty seems to have replaced it today. And no, it is not the poverty seen in Niger or Burkina Faso that people are talking about. Instead, it is the poverty in the First World, in countries such as the US, which has got more and more people worried.

In a 2015 book titled $2.00 a Day: Living on Almost Nothing in America, the sociologist Kathryn J. Edin and her colleague H. Luke Shaefer estimated that there are nearly 1.5 million American households who are living on fewer than $2 a day. Their work has gained credibility after the Nobel Prize-winning economist, Angus Deaton, himself an expert on poverty issues, seemed to back their arguments in a recent interview to the Atlantic.

Deaton goes on to compare the poverty in Mississippi to that in Bangladesh. In a memorable quote that has been repeated multiple times in several op-eds in some of the leading publications of the world, Deaton says, “If you had to choose between living in a poor village in India and living in the Mississippi Delta or in a suburb of Milwaukee in a trailer park, I’m not sure who would have the better life.”

Another well-known writer has compared some American towns with those in Zimbabwe. According to this writer, “It is possible to impoverish an American community to the point where it is indistinguishable from a hard-up town in the dusty heartland of a third world country.”

Is life in parts of the First World really worse than life in Third World countries? Unlikely, if one looks at the numbers closely. Comparisons of towns in the US with conditions in Zimbabwe, a country where income levels have been on a free-fall, and mortality rates have barely improved, are plain wrong. And even the comparisons between the poverty in the US and that in Bangladesh seem overblown. The $2 per day figure that Edin and Shaefer used, for instance, includes cash income (and excludes most welfare benefits received by poor citizens of the US), and hence is not comparable to the $2-a-day international poverty line, under which many in the Third World live.

Nonetheless, poverty and poor health in the US seems to be a growing problem. While Deaton’s comparison of the Mississippi Delta with rural India may be a tad overblown, two of his recent papers, co-authored with his wife and Princeton University colleague Anne Case, deserve close attention.

In their 2015 paper, Case and Deaton tabulated mortality rates for Americans by age and race. They found one group to stand out in terms of mortality: middle-aged white Americans. The duo found that average mortality rate amongst middle-age whites in the US has been increasing for the last couple of decades even as mortality rates for most other groups have been on the decline. In particular, those without a college education seem to have witnessed a dramatic rise in mortality rates even as mortality rates for all other groups—educated whites, Hispanics and blacks—have been declining. In 2016, the average mortality for those with just high school degree was about 30% higher than other groups. Compared with other developed countries, mortality rate for middle-aged whites in the US seem to stand out, with mortality rates being nearly twice as high as in Sweden.

Case and Deaton’s 2015 paper only documented the facts and doesn’t offer an explanation. In the follow-up paper that went online recently, Case and Deaton attempt to unravel the mystery of the rising mortality rates. The duo is cautious in offering an explanation but they speculate that the sharp spike in mortality rates could be a combination of poor job opportunities, poor health, and personal problems.

“We propose a preliminary but plausible story in which cumulative disadvantage over life, in the labour market, in marriage and child outcomes, and in health, is triggered by progressively worsening labour market opportunities at the time of entry for whites with low levels of education,” Case and Deaton write.

In many ways, the American Dream appears to have collapsed, with prospects for upward mobility shrinking, and with some regions left far behind others. A growing body of evidence points to a stalling of income mobility, and a decline in health outcomes in the US. Such dramatic reversals of fortune could also be responsible for the Trump phenomenon, research suggests.

In his best-selling book Hillbilly Elegy, venture capitalist and author Justin Vance narrates a grim account of rising poverty in the Midwest region of the US. The Midwest experienced the most rapid decline in the incidence of extreme poverty during the 1990s. The trend was reversed during the 2000s when the Midwest saw a steep rise in poverty as factories closed down and joblessness grew.

A December 2016 paper by the Clark medal winning economist Raj Chetty of Stanford University and his co-authors shows that inter-generational income mobility in the US has been falling for quite some time. To put it in numbers, the share of children earning more than their parents shrunk from 90% for the 1940 cohort to 40% in the cohort that was born in 1980. A new book by the economist Peter Temin, The Vanishing Middle Class, extends this argument to build a case that there are really two divergent Americas. The first one is populated with people armed with college degrees, which enjoys good health, and is in general prosperous. The other one is full of people who are insecure about their jobs and prone to ill health and drug-abuse.

Another research paper by Chetty and his co-authors point to a possible link between growing inequality and rising mortality. They argue that the association between income and life expectancy may be driven by unmeasured factors correlated with both health and income, such as differences in education or health behaviours. Chetty and his colleagues also argue that differences in health behaviours seem to play a bigger role in explaining variation in mortality rates than access to health care.

Case and Deaton also point to the role of education in driving differences in mortality rates among whites but they stress that income inequality is not driving their findings. The duo conjectures that despair, or failing mental health, could be the key driver of the rising white American mortality rates.

These findings—that the working class in the US is under stress—complement a recent study by the sociologist Shannon Monnat of Pennsylvania State University on the relationship between ‘death of despair’ and support for Donald Trump in the 2016 elections. Monnat finds that Trump outperformed his rivals in counties with the highest drug, alcohol and suicide mortality rates.

The high levels of mortality in the US today has some similarities with the episode of unusually high mortality in Russia in the aftermath of the disintegration of the Soviet Union. In a 1998 study, economist Giovanni Cornia and others showed that the sudden uptick in the mortality rates did not happen because of mass impoverishment, poor health systems, or environmental issues. Instead, it was rising mental stress which fuelled alcohol consumption, and emerged as the leading cause of death in Russia during the period 1989-95.

There seems to be a similar problem in the US. Data from the Centre for Disease Control and Prevention in the US shows that between 1999 and 2014, the suicide rate shot up by more than 20%. In particular, across all age groups, white men had higher suicide rates in 2014 than in 1999, with middle-aged white men witnessing the biggest spike in suicides.

While the research by Case and Deaton have helped focus attention on the underbelly of American life, their research has come under increased scrutiny over the past couple of months.

Their findings have been challenged by quite a few scholars; some accuse them of aggregating the data too much while others think the way they have disaggregated the data is problematic. Statistician Andrew Gelman of Columbia University and his co-author Jonathan Auerbach have critiqued the Case-Deaton findings for not adjusting for the changing composition of age-group. When they adjust for age-group, Gelman and Auerbach find that the increasing trend lasts only until 2005 and the trend becomes flat thereafter. This still doesn’t refute the Case-Deaton results about the rising mortality rates among non-Hispanic whites in the US.

In a column that appeared in Slate, Gelman and Auerbach wrote: “In their two papers on mortality trends, Case and Deaton have added a lot to the conversation on these issues. Our plots, showing trends by state, demonstrate in a very simple way that aggregate mortality trends are vague generalizations: There are many winners and losers over the last decade within white middle-aged Americans, or among any other particular group. There are also many relevant ways to slice up these trends, and it’s not clear to us that it’s appropriate to frame these trends as a crisis among middle-aged whites.”

Gelman and Auerbach provide a detailed break-up of mortality rates for various permutations and combinations of age groups, race, gender and geography. Their findings, however, do not really invalidate the Case-Deaton results. They rather pose a different question: if we disaggregate the same data, what do we expect to find?

While many researchers are arguing about the degree and the magnitude of the Case-Deaton findings, most agree with the broader point that there is something wrong.

Among the explanations that Vance conjectures are the loss of factory jobs and lack of social structure.

“As millions migrated north to factory jobs, the communities that sprouted up around those factories were vibrant but fragile: When the factories shut their doors, the people left behind were trapped in towns and cities that could no longer support such large populations with high-quality work. Those who could- generally the well-educated, wealthy, or well connected- left, leaving behind communities of poor people.”

Why is it that loss of jobs, if at all it is the explanation, was felt more severely by the whites than by other social groups?

Case and Deaton’s recent research only offer a starting point to deliberate about this and similar questions about American poverty and mortality in the twenty-first century.

Sumit Mishra teaches economics at the Institute for Financial Management and Research (IFMR), Sri City.

Economics Express looks at the world through the lens of economics.

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