Overdoses and Economics: A review of “Deaths of Despair and the Future of Capitalism” by Anne Case and Angus Deaton

(Originally published on LinkedIn March 19, 2020)

First Thoughts

Two sets of thoughts flashed through my mind as I read this book. First, since much of the world is locked down by the coronavirus, you can see people across the planet are looking to the biotech industry to urgently find vaccines and cures: the need for innovation is urgent. Second, I think of my experiences with Uber drivers around the Princeton NJ area. These are very often white, middle-aged men who lost their jobs as one or other manufacturing site across the state border in Pennsylvania closed down over the years. Usually, and generally without prompting, they look back wistfully upon their years in the company they once worked for and lament that things have never been right since: their pain is palpable.

The Pain of Manufacturing Decline

The emerging medical literature supports the view that pain felt by socially displaced people is not just metaphorical, it is real. While some scientists remain skeptical, there is growing consensus that both physical and social pain rely on shared neural and neurochemical substrates. Indeed, based on evidence from psychological and neuroscience research, it has been argued that pain itself may be more appropriately considered as both an internal and social phe­nomenon.

In the book under review, Anne Case and Angus Deaton document in detail a surprising phenomenon: life expectancy for the less-educated white working class in the United States not only stopped improving in the 21st century, it actually started declining. In their searing but meticulous account, they show that the decline of manufacturing jobs disproportionately hit those white workers that did not have college degrees. Consistent with what the emerging medical literature says about social pain, these workers faced deep distress, poor health and physical pain. They sought relief from their misery through sometimes fatal overdoses of alcohol and drugs and indeed often opted for suicide: “deaths of despair”.

Case and Deaton are a husband-and-wife team of economics professors at Princeton, the latter a Nobel Prize winner. In keeping with the style of economic analysis that has resurged in recent years, the authors try and explain what happened in the spirit of historians and sociologists. They argue that the loss of manufacturing jobs triggered something more powerful than a real but manageable decline in incomes. It led to the simultaneous loss of a world of work, of the family life that it supported and perhaps even a perceived loss of racial privilege (the last because, even as white workers were stumbling, blacks continued catching up — albeit not fully there yet — with measures of health and life expectancy).

Was Healthcare the Culprit?

The authors examine what underlying factor may have caused the deep distress that in turn caused such pain. They look at poverty, inequality and the Great Recession and decide that, while these factors may have contributed, they were not the main culprits. Moreover, in their reckoning, while more could have been done to alleviate the pressures from global trade, automation and possibly immigration, they do not see these factors as major culprits either.

Instead, they point their finger at the healthcare industry. In their narrative, pharma companies most egregiously exploited the deep distress of white less-educated workers by aggressively pushing pain medications even when it was clear they were being abused. In one example, 780 million hydrocodone and oxycodone pills were shipped to West Virginia between 2007 and 2012; in another, 9 million pills were shipped in just 2 years to a pharmacy in a town with a population of 406.

Shameful as these malpractices were, the authors go further. They provocatively argue that the healthcare industry did not just exploit the breakdown of American manufacturing. They argue that the healthcare industry actually caused the breakdown of American manufacturing!

To back this stunning claim, the authors summarize the well-known inefficiency of the US healthcare system: compared with other developed economies, US healthcare spending is disproportionate to the healthcare outcomes achieved, whether in terms of life expectancy, other health indicators or patient satisfaction. They list out the problems raised frequently in the media and political debates: hospitals that merge to create extortionate empires, overpaid doctors and executives, drug prices that are much higher than in Europe, bureaucratic health insurance companies, large amounts spent on political lobbying and collusion as well as conflicts of interest everywhere.

Case and Deaton argue that all of this has made US healthcare uniquely parasitical. Governments, employers and individuals pay to feed this parasite, raising their own costs. Along with concentrated market power of a few technology companies and weakening of trade unions, the impact of higher healthcare costs has undermined US manufacturing across industries. Manufacturing employers have responded over the years by reducing wages, lowering headcounts and outsourcing what they can — impacting white less educated workers the most. The deaths of despair, according to this Case-Deaton logic, would not have been so severe without the destruction of the white working class which in turn is directly attributable to the failure of the healthcare system. Or, as the title of the relevant chapter of their book chillingly puts it (using present continuous tense), American healthcare undermines lives.

Is the Case-Deaton Narrative Complete? An Evaluation

The data and deep empathy shown by Case and Deaton cannot but leave their readers with a shiver. But, as the book progresses, the authors veer from data and perhaps get carried away by their empathy. It is hard to say this of distinguished authors including a Nobel Prize winner but their analysis of the healthcare industry seems a bit desultory. To start with, they rely excessively on popular opinion pieces such as those of doctors (whose hearts are in the right places, no doubt) grumbling about the price of medicines. Secondly, when throwing out some of their anecdotal questions, they forget to follow through for answers — such as understanding why the price of insulin remains high even though not restricted by patents or licenses. Thirdly, they seem to not even have fully read through some of the writers they appreciatively quote: one of them actually believes that health insurance companies are victims, thus contradicting the authors’ own complaint.

More than any of this, though, Case and Deaton seem to ignore or only cursorily skim the robust healthcare economics literature. To be fair, they do acknowledge the seminal work of Arrow. This famous economist wrote a 1963 paper in the American Economic Review pointing out that healthcare is an extreme case of social-institutional structures that eludes analysis under the standard competitive market model; an example of a situation where the government may be forced to provide insurance if the market does not throw up one. However, both the structure of the healthcare industry and the technical toolbox of economic analysis have evolved considerably from 1963 and so it would be unfair to Arrow to leave the matter where he did. Case and Deaton are right to point out that healthcare providers and insurers have been consolidating and driving up prices and premiums. However, probably in contrast to Arrow’s time, there is enough technical understanding of the industry to suggest what kind of antitrust actions could preserve and enhance competition.

In any case, it is not clear that it is healthcare consolidation and price increases alone that have driven the growth in healthcare spending. Instead, data seem to suggest that (a) as aggregate income rises, consumption grows slower than income and people instead prefer to shift spending towards health (b) doctors and their patients prefer to adopt newer medical technologies as they develop. Simply put, as the nation’s income has grown, it appears that people are not only preferring to spend more on their health but also demanding the newest treatments available. Indeed, healthcare consolidation and price increases could well be reflections of these underlying preferences.

As regards society’s preference for newer treatments, Case and Deaton seem to overlook something even more fundamental. Despite years of research and a whole book on how a segment of the population missed the wider increases in life expectancy, they forget to ask why everyone takes it as axiomatic that humans should expect increasing life expectancy in the first place. As others have shown and as Case and Deaton would readily agree, there was hardly any increase in life expectancy from 1850 to 1900 and only very slow improvement until World War 2. The pace began to accelerate from that point, owed to a golden age of medical advancement. Public health measures, vaccines and antibiotics largely conquered infectious disease. From around the 1970s, mortality from cardiovascular disease began to slow as well, through better medical understanding and control of hypertension and atherosclerosis. Moreover, the Director of the National Institutes of Health Dr. Francis Collins argues that the arrow of biomedical progress is now traveling faster and further than ever before. In short, it is continuing medical advances that have propelled life expectancy for the wider population, even if a segment of the population — less educated white workers — missed the benefits in the most recent decades.

How did these life-expectancy-increasing medical advances come about and what will continue to drive them? Oddly, Case and Deaton seem to see this fundamental question as extraneous to their narrative, saying simply that the research is incomplete and they cannot resolve the issues within this book. Had they probed deeper, they may well have agreed that sustaining medical advances requires the careful nurturing of innovation. The authors do make some nods towards Schumpeterian innovation and even quote Justice Anton Scalia saying that the opportunity to charge monopoly prices induces risk taking and innovation. Yet, incomprehensibly, they do not seem to acknowledge that it is precisely incentives of this kind that stimulate R&D and lead to life and health enhancing medical breakthroughs, as plenty of academic studies attest. Instead, Case and Deaton seem to favor European-style controls, citing appreciatively the UK’s NICE agency that carries out comparative effectiveness studies. Even here, Case and Deaton make no allowance for research suggesting that such a one-size-fits-all approach could undermine quality of treatment or even increase costs, all the while undermining incentives to innovation.

In the spirit of historical and sociological inquiry and of a more comprehensive analysis, we would suggest that any analysis of the US healthcare industry look at two, seemingly conflicting, aspects. It may be true that the industry is characterized by inefficiency, some grubby practices and sub-optimal health outcomes. Yet, it is equally true that the healthcare industry — which comprises the noble scientist toiling away in a small, cash-starved biotech as much as the heartless administrator inside an insurance behemoth — has driven a series of medical innovations that have lifted health and life expectancy for a vast majority. Recalling the principle set out by Tinbergen, another Nobel economist, we should have a separate instrument for each objective. Any reform of the healthcare system probably needs say one instrument to curb waste, another to curb malpractice and a third to encourage innovation. Muddling them all up, and trying to curb waste or malpractice by attacking the healthcare industry as a whole, risks undermining the innovations that have delivered health for the majority of the population.

Concluding Thoughts

In summary, Case and Deaton’s book must be read for the careful manner it exposes how the decline of US manufacturing brought about deep social distress among less educated white workers. The authors must be commended for going beyond the narrow confines of textbook economics to understand the historical, sociological and medical aspects. Notably, the authors are able to demonstrate a clear causality between the despair of the less educated white workers and the health morbidities and mortalities it induced, leading to a shocking reversal in life expectancy.

Unfortunately, the authors’ attempt to assign culpability of the decline of US manufacturing itself to the healthcare industry is less persuasive. Instead of relying on shrill opinion pieces, the authors could have undertaken a more holistic and rigorous review of the central tradeoff that characterizes US healthcare: wasteful expenditures and predatory practices relative to other developed countries but also a highly innovative industry that has delivered the very medical advances that have made increases in life expectancy near-axiomatic. In this reviewer’s opinion, any policy paradigm that attempts to tackle waste or predation must make sure to not kill the very solutions to pain and despair that medical innovations deliver.

References

Arrow (1963) “Uncertainty and the Welfare Economics of Medical Care”, American Economic Review, December

Basu and Philipson (2010) “The Impact of Comparative Effectiveness Research on Health and Health Care Spending” NBER Working Paper 15633, January

Case and Deaton (2020) “Deaths of Despair and the Future of Capitalism”, Princeton University Press, Princeton NJ, March 17

Chaffin (2020) “Interview: Anne Case”, FT Weekend Magazine, February 29

Collins (2013) “Politics on the Frontiers of Science: Major Breakthroughs are possible in neuroscience, cancer, AIDS and Parkinson’s — if Congress learns to set priorities”: Saturday Interview with Rago, The Wall Street Journal, November 8

Eisenberger (2015) “Social Pain and the Brain: Controversies, Questions and Where to Go from Here”, Annual Review of Psychology

Emanuel (2018) “The Real Cost of the US Healthcare System”, JAMA, March 13

Gaynor (2018) “Examining the Effect of Healthcare Consolidation”, Statement before the Committee on Energy and Commerce Oversight and Investigations Subcommittee, US House of Representatives, Washington DC, February 14

Gee (2019) “The High Price of Hospital Care”, Center for American Progress, June 26

Hall and Jones (2004) “The Value of Life and the Rise in Health Spending”, NBER Working Paper 10737, August

Kennedy (2019) “The Link Between Drug Prices and Research on the Next Generation of Cures”, Information Technology and Innovation Foundation, September 9

Mahurkar (2014) “Medical Progress and Mortality Derivatives”, https://www.linkedin.com/pulse/20140815102713-4475454-medical-progress-and-mortality-derivatives/

McCardle (2012) “Liberals Are Wrong: Free Market Healthcare Is Possible”, The Atlantic March 18

Nakada, Breaux, Honarkhah, Hornsby, Tolla and Vessenes (2014) “The Fundamentals of Longevity Risk”, The Journal of Alternative Investments, Summer 2014 Issue

NPR (2015) “’America’s Bitter Pill’ makes case for why healthcare law won’t work”: interview with Steven Brill

Schaeffer (2019) “A Note on the Tinbergen Principle”, Presented at the Annual Southern Regional Science Association Meetings, Washington, DC, April 4–6

Smith, Newhouse and Freeland (2009) “Income, Insurance and Technology: Why Does Health Spending Outpace Economic Growth?”, Health Affairs, September/October

Sturgeon and Zautra (2016) “Social pain and physical pain: shared paths to resilience”, Pain Management Vol 6 №1