Wednesday, 14 October 2015

A noble Nobel for the man who told us poverty is finally being conquered [updated]

And the Nobel Prize in Economics* this year goes to Angus Deaton, the author of The Great Escape, “which focuses on how modernity revolutionised standards for consumption.”

Peter Klein “can’t help poking a little fun at the economics profession” for its recent prizes:

You may have heard the joke that economists used to win the Nobel prize for explaining to the general public something that previously only economists understood, but now they win it for explaining to their fellow economists something that the general public has always known, e.g.:Politicians care about themselves (Buchanan).

  • Don’t put all your eggs in one basket (Markowitz, Miller,and Sharpe).
  • You can’t fool all of the people all of the time (Lucas).
  • Some people know more than others (Akerlof, Spence, Stiglitz).

Deaton’s major insight: aggregate measures of consumption and inequality conceal important differences among individuals.

It doesn’t sound earth-shaking, does it? His greatest contribution, says Tyler Cowen, is “understanding what economic progress really means.” Deaton work, imbued with a “deep underlying optimism about the situation of the poor in the global economy,” has revolutionised economics’ approach to poverty,

When you read that world poverty has fallen below 10% for the first time ever and you want to know how we know — the answer is Deaton’s work on household surveys, data collection and welfare measurement.

Without Deaton, we wouldn’t know that we’re living in a time in history when poverty is finally being conquered.

Deaton’s work on world poverty [is] a tour de force: he made advances in theory, he joined with others to take the theory to the field to make measurements, and he used the measurements to draw attention to important issues in the world.

Deaton’s work is both technical and normative. He is not an economist afraid to form a conclusion, arguing for example that that foreign aid has probably done more harm than good—largely because most of the aid ends up rewarding corrupt governments.

Unfortunately, the world’s rich countries currently are making things worse. Foreign aid — transfers from rich countries to poor countries — has much to its credit, particularly in terms of health care, with many people alive today who would otherwise be dead.
    But foreign aid also undermines the development of local state capacity.
    This is most obvious in countries — mostly in Africa — where the government receives aid directly and aid flows are large relative to fiscal expenditure (often more than half the total). Such governments need no contract with their citizens, no parliament, and no tax-collection system.
    If they are accountable to anyone, it is to the donors; but even this fails in practice, because the donors, under pressure from their own citizens (who rightly want to help the poor), need to disburse money just as much as poor-country governments need to receive it, if not more so.
    What about bypassing governments and
giving aid directly to the poor? Certainly, the immediate effects are likely to be better, especially in countries where little government-to-government aid actually reaches the poor. And it would take an astonishingly small sum of money — about 15 US cents a day from each adult in the rich world — to bring everyone up to at least the destitution line of a dollar a day.
    Yet this is no solution. Poor people need government to lead better lives; taking government out of the loop might improve things in the short run, but it would leave unsolved the underlying problem. Poor countries cannot forever have their health services run from abroad. Aid undermines what poor people need most: an effective government that works with them for today and tomorrow.
    One thing that we can do is to agitate for our own governments to stop doing those things that make it harder for poor countries to stop being poor. Reducing aid is one, but so is limiting the arms trade, improving rich-country trade and subsidy policies, providing technical advice that is not tied to aid, and developing better drugs for diseases that do not affect rich people.
    We cannot help the poor by making their already-weak governments even weaker.

* Oh, alright, for you pedants: the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.

UPDATELynne Keisling has praise, and links:

Angus Deaton is the worthy and deserving winner of this year’s economics Nobel. The arc of his work, from theory to data to empirical application, has been consumption, measuring consumption, and consumption as an indicator of well-being, poverty, and inequality. His analyses also incorporate political economy as a factor influencing those relationships and incentives.
    If you haven’t read his book
The Great Escape, do so. It’s an accessible and optimistic account of the relationship between poverty and economic growth. Here’s an interview with Deaton from Caleb Brown at the Cato Daily Podcast in 2013 on the themes of the book. For a longer discussion based on the book, Russ Roberts’ EconTalk podcast with Deaton from November 2013 is well worth the time…
    In my mind, Deaton’s work sits with the demographic analyses and data visualization of
Hans Rosling (if you haven’t seen his 200 countries in 200 years video, put down everything right now and watch it; his TED talk about the impact of the washing machine is guaranteed to bring tears to the eyes of at least this unsentimental economist). It also complements Joel Mokyr’s economic history of innovation and technological change as factors enabling economic growth.

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