World Economy

Deaton’s Development

Post-Doc and Teaching Fellow at Alzahra University
Deaton’s Development Deaton’s Development

Angus Deaton won the 2015 Nobel Prize in economics for his contribution to development economics and consequently development in economics.  The British-born Princeton professor received the prize for his work on consumption, poverty, income inequality and welfare.

In awarding the prize, the Royal Swedish Academy of Sciences said, “To design economic policy that promotes welfare and reduces poverty, we must first understand individual consumption choices. More than anyone else, Angus Deaton has enhanced this understanding.”  Deaton’s research has bridged individual choices to aggregate outcomes which have transformed the field suffering from aggregation biases through its focus on average behavior which is not representative in many occasions.

While Deaton focuses on wealth and income inequality and poverty by patterns of consumer spending and intelligent use of survey data, he admits that the world is a better place than what it used to be.  He stresses the fact that the analysis of economic data shows that most people have gained in terms of health and well-being from GDP growth, but many groups have missed out particularly if measures beyond those most commonly examined are considered.

Like Maurice Allais (1911-2010), winner of the prize in 1988 who has a paradox in his name, Deaton’s name is associated with the Deaton paradox -- an observation that sharp shocks to income do not cause equally sharp shocks to consumption.

As Deaton shows the role of politics in income inequality, he questions the government “proven” practices by saying if a particular government intervention worked once there is no guarantee that it will work again, or in another context. “His work has transformed development economics from a theoretical field based on aggregate data to an empirical field based on detailed individual data,” the academy said.

Deaton’s contribution goes beyond microeconomics and development economics to macroeconomics in which the importance of micro foundations are recognized and practiced.  He has shown that it is not enough to look at aggregate income and consumption to see the effect of changes in taxes for example. According to the academy press release for better understanding of consumption, Deaton has shown one should sum up how individuals adapt their own consumption to their individual income, which fluctuates in a very different way to aggregate income. This prize shows that economics as a science is moving to understand why certain patterns exist rather than finding causal relationships between aggregate variables.

Deaton’s recent book, The Great Escape: Health, Wealth, and the Origins of Inequality, is a powerful guide for addressing well-being across the world that is well accepted by the scholarly community unlike Capital in the 21st century, a blockbuster by Thomas Piketty who is too young for the prize, according to The Economist.

In this book Deaton questions the usefulness of aid and considers alternatives like massive investment in medical research and preventing the small arms trade. He thinks all non-health related foreign aid is making global poverty worse.  The book has been endorsed by many notable people including Bill Gates that recommends the book for learning why human welfare overall has gone up so much over time. Martha Craven Nussbaum, an American philosopher and professor of law and ethics at the University of Chicago calls the book an engaging and sure-footed guide to the endless dance between progress and inequality.

The economics Nobel prize is a rather controversial one that was created by the Swedish central bank in 1968 and it was not in Nobel’s will, hence many wanted the prize abolished. As a controversial laureate, Friedrich Hayek (1899-1992), a liberal philosopher and economist who jointly received the prize with socialist economist Gunnar Myrdal (1898-1987), from the opposite side of the political spectrum has stated: “The Nobel Prize confers on an individual an authority which in economics no man ought to possess.”

Barely five years of the prize establishment, Hayek in his Nobel speech noted the difficulties of studying a complex phenomenon of market as it has many players and there are many facts which cannot be measured and are simply disregarded. The work of Deaton can be regarded as a comprehensive approach to economic complexities that Hayek was aware of.