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On February 23, 2021, CFA Society Chicago’s Distinguished Speaker Series Advisory Group held a webinar entitled American Exceptionalism—The Erosion of US Working Class Life. Cosmin Lucaci, CFA, served as moderator and the keynote speaker was Sir Angus Deaton, Nobel Prize winning economist and co-author of Deaths of Despair and the Future of Capitalism.

Deaton started off his presentation highlighting the background behind the current Deaths of Despair book. Even prior to COVID, Americans with education less than a bachelor’s degree have had higher mortality rates. Americans in this category account for approximately two-thirds of the U.S. population between ages 25 and 64. Deaton noted that mortality rates for this group have been steadily decreasing across the full 20th century. Deaths in the population for the U.S. white non-Hispanic group have decreased from around 1400 per 100,000 in 1900 down to 400 per 100,000 in 2000. There are some small fluctuations on this historical path, such as a spike in mortality surrounding the Spanish flu pandemic in the early 20th century, and a brief flattening of mortality improvement in the 1960’s due to tobacco usage.

Deaton commented that he also has looked at trends from the 1990’s and into the 21st century. Trends for many countries from 1990 – 2015 have continued, but US white non-Hispanic mortality has moved in a noticeably different direction. This group’s mortality rates have stayed fairly constant from 1990 to 2015. Deaton noted especially that a leveling off and no further improvement is noticeable for the population age group ages 45 through 54. U.S. Hispanic mortality by comparison has continued on the downward trend seen in other countries. Most notably, Deaton highlighted that U.S. overall life expectancy actually fell for three straight years from 2015 through 2017. This result has not happened for over a century when the population mortality was influenced by World War I and the influenza epidemic.

Deaton commented that these results were worth deeper exploration. He was curious to investigate what had happened and why mortality had increased. Were there drivers in the population that were causing this influence? Deaton noted that a main driver was coming from three specific causes of death:  Drug overdoses, suicides, and alcohol-related liver disease. These causes saw pronounced mortality disimprovement during the period Deaton had studied, resulting in the moniker, “Deaths of Despair” which has been picked up and used more in conversation and the press in recent years. Deaton also noted that the same phenomena was not occurring as much for ages 65 and over but was very pronounced in the populations being studied for many ages between 25 and 64.

Deaton commented about how this might relate to the COVID-19 pandemic that is currently occurring. For deaths of despair, excess mortality for these causes compared to previous standards may be around 100,000 extra deaths per year. COVID currently has produced over 500,000 deaths in 2020 and into 2021 but also has the impact that vaccines are around for the future mitigation of COVID. No vaccine is available for deaths of despair.

Deaton noted that this is a widespread issue across the entire U.S. All U.S. states saw increases in all three causes between 2000 and 2018. It is not limited just to an isolated geography, and it is impactful for both men and women. The pure mortality rate for women is lower, but the relative increase for both men and women is approximately the same. The mortality change when studying the U.S. population by education levels shows that the changes for the deaths of despair are much more pronounced for those without at least a bachelor’s degree. Deaton also noted that the recession from 2008 did not seem to have a large impact on the trends. The trends continued to increase but also without a prominent spike up due to the recession timeframe. Deaton noted that underlying these mortality trends lie the roots of despair. Even without the mortality impact, there is a societal condition being seen in morbidity – increasing pain, increasing social isolation, and poorer mental health.

Deaton then transitioned to give some economic overview related to these mortality trends. Median real wages for those with less than a four-year degree have been dropping more or less continuously since 1980. There was a small run-up in these wages during the recent Trump administration, but still the overall level of median real-wages are far lower than they were in the 1980’s. Deaton notes that there are also some business cycle phenomena to follow when looking at the percentage of the population that is employed but all peaks and troughs across the business cycles ended up with lower values than the previous cycle. Reduced employment and lower wages suggest  lower demand for labor has also been a factor here.

Deaton noted that when looking at wage levels, there is often only small wage changes within maintaining a job. Broader impact happens, however, when jobs are replaced. Job outsourcing has become more common, especially within large firms. It is more common now to have outsourcing for firm services such as for transportation, security, and food service within an organization. Now most firms will hire an outside contractor to supply these services. The work of the jobs may be very similar whether done within the firm or by an outside contractor, but these contracted employees are often not seen as part of the firm. These roles often bring about personal feelings by workers of less commitment, less meaning, and it becomes harder to see these roles as part of a good life. The concept of a janitor becoming CEO may not always be common but when these types of roles were done by employees of the company, it was at least a previous possibility.

The trend for outsourcing of labor for roles within a firm has also resulted in some individuals finding less meaning or status through work. As work status and future potential has an impact on society some societal trends may evolve. Marriage rates have declined, out of wedlock childbearing has increased, and cohabitations have increased, but are more unstable. This also has a connection to a loss of community. Deaton noted there were strong parallel effects seen in his study when compared to the effects of job loss in the African American community in the late 1960s and into the 1970s.

Deaton has continued to study what has happened to the U.S. white working class. Labor has been weakened by globalization and automation. Deaton notes, however, that this has happened in other countries as well and has studied what makes the U.S. unique in this context.

First, the impact of opioids in the U.S. has been high. Despair preceded opioids for sure, as higher mortality rate were occurring prior to arrival of OxyContin. But the crisis has been magnified with the arrival of the availability of opioids. Pharmaceutical companies, such as Purdue Pharma, targeted despair.

Second, American healthcare is an issue. The U.S. has the most expensive healthcare system in the world, but the U.S. also may have the worst health outcomes in the developed world. Deaton shared comparisons of life expectancy changes over time compared to health expenditures. For example, life expectancy for UK has increased along with generally growing health care expenditure per capita. Australia is the same, Canada is the same, France is the same. Switzerland has the second most expensive healthcare expenditures per capita in the developed world but also higher life expectancy than the U.S. The U.S. until the 1980s was generally in the range of other similar countries on these measures and then came the dramatic increase in healthcare expenditures.

The U.S. currently spends nearly 18% of its Gross Domestic Product on healthcare. Switzerland is the next highest at 12.4%. The excess difference between the U.S. and the second highest spender is $1 trillion per year, based on the 5% differential in GDP. This excess cost comes out of employee wages, corporate profits, and overall taxes. A lot of the decreasing wage situation for subpopulations in the U.S. that Deaton described can be attributed to increasing costs of healthcare such as higher insurance premiums. Many firms are facing their contribution to the share of health care premiums, often between two-thirds and three-fourths of the total cost and decide to outsource low wage jobs. In addition, state governments must pay their share of overall Medicaid costs which leads to increased costs and taxes.

Deaton noted that in his book, he and his co-author talk about the future of capitalism and how to fix things for the future. Healthcare reform is a central topic, and the current system represents a wound that the U.S. is inflicting on itself. Deaton noted that perhaps COVID may give an opportunity to fix it. When comparing COVID mortality compared to opioid mortality or deaths of despair, there are some similarities. Both have been striking lower-skilled and less educated people much harder. Deaton noted that changes to health care systems can be hard with distrust in government. Deaton noted that this has been an issue in the deaths of despair; people who are affected by the despair conditions think the system is rigged against them.

Deaton noted there are also differences when comparing COVID to deaths of despair. COVID has had a higher impact on communities of color compared to white non-Hispanics. Vaccines have evolved for COVID, and prevention is not as simple for despair. The U.S. has seen a huge increase in wealth inequality during the pandemic – equity markets have hit record highs, tech giants have done incredibly well, and the richest men in the world made hundreds of billions of dollars. Higher educated people saw big increases in retirement portfolios and 401(k) plans. While more than 500,000 have died from COVID, this has been distributed differentially amongst those less educated. Anger and danger can evolve if these things are not improved and if the full population do not all get to participate in economic growth and politics.

Lucaci then initiated a question and answer with Deaton. A first question centered on the comparison to the African American experience from the 1960s and 1970s in the U.S. Does the evidence from deaths of despair highlight that there can be a risk to all groups if treated disparately for a long period of time?  Deaton noted that this is a possibility, and important to look at the impact across all parts of society and subgroups.

A question was posed to Deaton on whether this brought the potential for the U.S. to implementing a universal income program. Deaton was a strong opponent of this, noting that it may only work if society goes to an extreme. Deaton noted that if robots take over, and if the only people who earn money is those who own or control the robots, then perhaps you would need a social structure to share income. But Deaton commented that people still want the dignity of work rather than relying on universal income.

Deaton was asked what the opportunity was for changing the approach and funding of the U.S. healthcare system. Deaton highlighted that there is a strong focus on keeping the system the same and a strong lobby in Washington, D.C. to keep it that way. Even under the Affordable Care Act, healthcare markets are a big part of the new structure. Deaton commented that COVID may present an opportunity to change this and the current era of the quest for vaccines is a good example. Many people who have lost jobs during the COVID pandemic likely also lost healthcare insurance, or if they have a need for services, they may not be getting billed.

Deaton was asked what the effects on technology may have on increased access to healthcare. Deaton noted that technology has been an opportunity and that big tech has brought enormous benefits to us all. Being an academic is so much easier and efficient today than many years ago and technology brings about access to many things. Technology has a chance to help but it is incremental.

Deaton was asked if the root of the health care financing problem in the U.S. comes from the tax-deductibility to the employer of providing benefits. If that were eliminated, would that be a way to break the connection between employment and healthcare? Deaton responded that to do this right now would be a disaster since health care coverage would end up costing twice as much and employers would generally respond by cutting jobs.  It is very hard to have a free market solution for healthcare. Deaton noted he was not advocating for any particular way to pursue healthcare but any of the other solutions in the world can be better than what is in the U.S. today.

Lucaci noted that The Rise of the Meritocracy by Michael Young talks about sharing schemes and predicts fairly well the forces that can emerge and, in many cases, have come true. Deaton added that these divisions between groups of populists, or the working class, and the hypocrisy/meritocracy can be seen. The COVID Pandemic has further highlighted the differences between groups in society.

Lucaci asked Deaton if there were tangible ways to help friends or family members susceptible to deaths of despair? Deaton advised to talk about it, but also to not yell. There is a benefit to understand the situation driving the despair and talk about it. Deaton noted that a national service scheme can work, and it does not necessarily need to have a military focus. Programs where younger generations can enlist for service has the benefit of mixing people from different backgrounds. It can provide for a mix where everyone can interact, form friendships, and have exposure to different backgrounds and experiences. This happened somewhat naturally in Second World War and was to the country’s benefit.