Nobel Laureate Angus Deaton on COVID, economics, and China-US relations

"American attitudes towards China also need to change. I think this is happening, albeit slowly. At least some economists are realizing that they might have been wrong about trade," says the professor

Zichen Wang

Mar 8, 2023

Pekingnology is privileged to share a recent speech by Sir Angus Deaton, Dwight D. Eisenhower Professor of International Affairs, Emeritus; Professor of Economics and International Affairs, Emeritus; and Senior Scholar at the School of Public and International Affairs, Princeton University.

Professor Sir Angus Deaton received The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel in 2015, “for his analysis of consumption, poverty, and welfare.”

He made the following speech via video link on December 18, 2022, at the 7th National Development Forum held by the National School of Development (NSD), Peking University.

[I thank Professor Sir Angus Deaton for providing an updated, written version of his speech and granting permission to publish it here. I also thank NSD for allowing Pekingnology to publish it. - Zichen]

Global Change and National Development

Thoughts on COVID, economics, and China/US relations

Angus Deaton, December 2022; updated, March 2023

Outline:

What are the greatest impacts of COVID-19 on individuals, families and businesses? How to deal with them?
What are the economic issues and challenges currently besieging China and the US, respectively?
What direction is the China-US relation heading to?
What impact will the development of China-US relations have on the international landscape?

Discussion:

Let me start with COVID-19

There is a lot to say here. As I first thought about this talk in November 2023, I was in Edinburgh, in Scotland, and in a week, I never saw anyone wearing a mask. In Princeton, there are more, but use is markedly different across different parts of the United States: in particular, in Republican controlled areas of the country, precautions are discouraged. One state governor made fun of children who were wearing masks, and in another state, where I spend some of my time, the legislature banned private business from requiring their employees to be vaccinated. In Britain, as in much of the US, people seem to have decided that the epidemic is over, and that normal times have returned. “Normal” does not mean that there is no COVID-19; indeed, in March 2023, more than 400 people are dying of COVID each day. But it is being treated like another familiar disease, like cold or influenza, if often more unpleasant. There seems little cognizance of the fact that there is a real degradation in the quality of life, that mortality rates persist and that morbidity levels have increased.

The Biden administration declared that the pandemic was over, meaning, I presume, that the administration was done dealing with it and in the hope that it would cease to be a political issue. Partly in consequence, there is now no national monitoring system of infection. Home tests are not reported to any central register, and sewage testing is done only in some places. Deaths are still running at around 400 a day. These deaths used to be largely among the fifth of the population that is unvaccinated but more recently, are predominately among fully vaccinated elderly people. New variants are less deadly, but also less responsive to vaccines.

In Britain, random samples of the population are tested each day, so that a new wave would be quickly identified, which is not true in the US. Deaths per million in Britain are currently similar to those in the US, in spite of near total vaccination; even so, in late 2021 and early 2022, British deaths were lower than in the US. Once again, this seems explicable in terms of waning effectiveness of vaccines.

China, of course, is completely different. The zero-COVID strategy, which China’s political system made possible, saved millions of lives during the pandemic, for which it should get enormous credit. As of December 2023, the cumulative death rate in China was almost a thousand times smaller than in Britain or the US, so that, if China had followed the same policies as Britain and the US, around three million more people would have died.

I think it is important to keep these numbers in mind when we think about China’s current difficulties in moving to a post-pandemic normality. The zero-COVID policy was very costly in terms of lost output, and in terms of the inconveniences involved. Yet it should be remembered that, even if the exit from the policy is costly in terms of lives lost, the virus today is not as deadly as it once was, so that, when normality is returned, China will almost certainly have done better than either the US or Britain in terms of lives saved as a fraction of the population. That would be true, even if the number of deaths in China is as high as some of the worst predictions. And China was far from alone in overestimating the effectiveness of lockdowns in controlling the virus.

I note that all international comparisons are hazardous given weaknesses in the data. I believe that it would help our ultimate understanding of the pandemic, as well as help us prepare for future pandemics, if we had better up to date information on COVID mortality from China.

One aspect of COVID that has been too little discussed is the deterioration in relationships from the lack of face-to-face contact between Americans and Chinese people. The customary situation, of heavy and easy travel between China and the US, not only promoted business and academic exchange, but promoted understanding of developments in both countries, understanding that is not easily re-established via Zoom. This conversation today should be happening in person, not via the clumsy intermediation of virtual contact.

Let me now turn to the economic issues facing the US and China. Much of the difficulty is not to do with international arrangements, but with national issues, particularly in the US. Some of these national issues are related to China, but not all of them. Let me explain.

Globalization has been a huge force for good in the world over the last half century. Health innovations that were invented in today’s rich countries spread around the world, aided by easier, faster, and more frequent communication. There were huge increases in life expectancy in poor countries, and a massive decline in inequality of life expectancy around the world. Later, as more and more countries made greater use of markets, both internally and internationally, prosperity spread too. China was the leading example but was far from the only country to so benefit.

But the globalization of trade posed problems for the rich countries, especially for less-educated workers in rich countries, and those problems were not well handled. In the United States two-thirds of adults do not have a college degree, so we are talking about a majority, not a neglected minority.

Among the well-educated western elites in government, in academia, and in international organizations, there was a belief, a belief that I myself once shared, that even if some American workers were harmed, that was outweighed by the benefits to the gainers, the much poorer workers around the world. Global average income had increased, and global inequality had fallen. What was there not to like?

I call this ethical view cosmopolitan prioritarianism; it is “cosmopolitan” because it treats everyone in the world in the same way, with no favors based on nationality, and it is “prioritarian” because it gives greater weight at the margin to anyone who has less. So, if Chinese exports displace American jobs, the world is a better place even though some people lose out. Of course, the losers, the less-educated American workers, did not subscribe to this view, nor were they consulted. Note also that the Chinese or Vietnamese or Malaysians or Indians who were the beneficiaries did not have votes in the United States or other rich countries, so that the politics of globalization did not match the ethics. Nor does cosmopolitanism always adequately recognize the special rights and responsibilities that arise within a nation and that do not apply to foreigners.

Economists were also reluctant to endorse the view that trade hurt Americans at all, typically arguing that harms, if any, were short lived and that those who were displaced would upgrade to better jobs, though perhaps having to move. In the meantime, they could enjoy the cheap Chinese goods in Walmart and Target. For several reasons, including technical change, and the increasing cost of living in successful cities, the upgrading of jobs has not happened.

A similar story can be told about immigration. After the late 1960s, American law was changed to permit much more immigration, with the new migrants coming predominately from Latin America and Asia, different from traditional migrants to the US, who had come from Europe, mostly northern Europe. More immigrants came to America after the late 1960s than had come in all of its previous history, and the share of the population born abroad rose to nearly fourteen percent, a level not seen since the end of the 19^th century. Again, economists argued that these immigrants were benefiting Americans, not harming them. And the cosmopolitan prioritarians argued, once again, that, even if there was harm to native Americans, the immigrants who benefited gained much more and were poorer to start with.

Once again, most working class and less-educated Americans did not agree.

Because of both globalization and immigration, there are large numbers of angry and frustrated less-educated Americans who feel that they are not being listened to in domestic politics. Beyond that, their wages declined in real terms for more than half a century, their communities are coming apart, and their health is declining. Indeed, since 1990, life expectancy at age 25 has declined for Americans without a college degree, while it has continued to increase for those who have one. For those without a college degree, their mortality rates were rising long before the pandemic. During the pandemic, mortality rates rose for both the educated and less educated, but by much more among the latter.

Perhaps worse still, less-educated Americans feel they are being condescended to by an educated elite that is benefiting from globalization and immigration, while refusing to recognize their plight, denying it exists, or telling them they should accept it as the price to be paid for reducing global poverty. This is a kind of involuntary foreign aid, for which no one asked their opinion or their permission.

Given this background, it is easy to see why China could become a target during the Trump administration, and why it remains unpopular. The problem, as I see it, is less the actions of China itself, but the mistaken and condescending attitudes of the educated elite in the US. No one should undervalue the achievements of Chinese growth and poverty reduction, nor those of the other once poor countries who participated in the benefits of globalization.

But there should have been greater recognition of the plight of working-class Americans, and the changes that were happening in their lives. It would be good if China understood this, though it is even more important that it be understood by educated American. Perhaps there could have been more assistance—though this has always been politically difficult and is opposed even by unions, who prefer jobs to compensation for lost jobs—and perhaps by slowing down the processes of trade, immigration, and global capital flows. And the US suffers in comparison with Western Europe in not having a comprehensive welfare state.

I do not believe that the lessons have yet been learned. The educated elite remain unsympathetic or worse to those who they see as antidemocratic Trump supporters. This will also make progress on climate change hard to achieve. Less educated Americans have been patronized and lied to on so many occasions that they will find it hard to trust policies that need to be implemented. The recent agreement at COP27 to pay for loss and damage will be seen, once again, as involuntary foreign aid to be paid by people who, for better or worse, are adamantly opposed to any foreign aid. (Never mind that the loss and damage agreement does nothing to reduce emissions.) Climate change policies will have to be designed that directly benefit the majority in the US, for example by using positive incentives rather than negative penalties.

As to future direction, repairs will not be easy nor quick. Easing travel restrictions will do a lot, though it will take time and not be easy.

American attitudes towards China also need to change. I think this is happening, albeit slowly. At least some economists are realizing that they might have been wrong about trade. (Admitting to being wrong on immigration is a tougher ask.) The Biden administration has links to working class Americans that are stronger than those in recent Democratic administrations, and it is working to give greater recognition to their trade-related problems. If these internal changes take root in the US, there will be less pressure on China and on US-China relationships.

Finally, an early end to the war in Ukraine would help almost everything. Lower energy prices would make lives easier in the US and in Europe. That China has supported Russia, albeit unenthusiastically, has been another source of tension.

On the international economic landscape, I do not have a great deal to say. With China and the US at loggerheads, there are diversions of trade, for example by US manufacturers moving production to third countries, and with China sending exports elsewhere. These will offset the damage but are unlikely to undo it; current production and trade patterns are as they are for good reason. Some of the changes might not easily change back, for example if fixed costs have been met, and if new locations turn out to work better than originally anticipated. Capital mobility is likely to be more limited in future, something that is more desirable than limitations to trade. Indeed, it might even be helpful.

Yet to me, these are lesser consequences of my main theme, which is that much, perhaps most, of the harm was done by poor attitudes and poor understandings of processes and people by educated elites in the rich countries themselves, particularly in the United States.

Dr. Henry Huiyao WANG, founder and President of the Center for China and Globalization (CCG), where Pekingnology is now hosted, had a dialogue with Angus Deaton and Professor Anne Case in June 2022 on understanding inequality in a globalizing world.

Anne Case is the Alexander Stewart 1886 Professor of Economics and Public Affairs, Emeritus at Princeton University. Dr. Case has written extensively on health over the life course. She has been awarded the Kenneth J. Arrow Prize in Health Economics from the International Health Economics Association, for her work on the links between economic status and health status in childhood, and the Cozzarelli Prize from the Proceedings of the National Academy of Sciences for her research on midlife morbidity and mortality. Dr. Case currently serves on the Committee on National Statistics.