Angus Deaton: An Appreciation

By Raghav Gaiha Reprint | | Print | |En español

Raghav Gaiha is Visiting Scientist, Global Aging Programme at the Harvard School of Public Health. The views expressed are personal.

NEW DELHI, Oct 19 2015 (IPS) - After Adam Smith and Amartya Sen, Angus Deaton, this year’s Nobel laureate in economics, has contributed most to broaden and enrich our understanding of human well-being. His brilliant and path-breaking contributions to the theory and measurement of consumption, poverty, inequality, nutrition – and, more recently, aging, morbidity and suicides – have inspired a generation of economists to carry out reformulations, refinements and extensions.

Raghav Gaiha

Multilaterals, donors and national policy makers have not been far behind in rethinking development priorities and policies. Blending micro and macro- economics in remarkably creative ways and expanding frontiers of our knowledge through meticulous and innovative empirical validation, Deaton remains peerless. This endorsement, however, does not imply that he hasn’t had his share of controversies.

Much much has been written about his contributions to demand theory, demonstrating how interdependent demands are for different commodities through relative prices, why consumption is more volatile than income if aggregated from individual choices, the pitfalls in measuring poverty and inequality globally and nationally and his emphasis on carefully designed household surveys.

More, however, needs to be said on some of these propositions and on his more recent contributions to understanding human well-being through self-assessed measures of well-being and health status, aging, morbidity and mortality.

His distrust of causal inferences drawn from standard econometric techniques and the current fad of randomised controlled trials (RCTs), and why foreign aid may do more harm than good under certain circumstances cannot be dismissed lightly but remain controversial.

Let me begin with his deep scepticism of global poverty estimates that the World Bank produces periodically. The estimation requires (i) purchasing power parity ratios or PPPs (i.e. how many dollars are needed to buy a dollar’s worth of goods in the country, say India, as compared to the United States); and (ii) determination of a poverty cut-off point. The latter is taken to be the average of the national poverty lines of the poorest 15 countries in the world in PPP. In admirably lucid comments, Deaton draws attention to some flaws in the construction of PPS and their comparability over time, and determination of the poverty line. The revision of the 1993 PPS in 2005, and a higher poverty line of $1.25 (instead of $1.08) resulted in a jump of the global count of the poor for 1993 by half a billion. Likening it to an “earthquake”, Deaton pointed out that this had little to do with the revision of the PPPs and largely a result of a “faulty” poverty line. As India became richer, and its poverty line was much lower, it graduated out of the 15 poorest countries, and the average poverty line of the new 15 poorest countries rose. As a result, India’s prosperity left India and the rest of the world poorer. His eminently sensible suggestion is to estimate global poverty using India’s original poverty line or the average of the same 15 poorest countries. As he elaborates, “ …the world count would simply be the number of people living below the poverty line set in India when a large fraction of its population was destitute”.

Inspired by Sen’s focus on human functionings and capabilities, Deaton is emphatic that income-based measures of poverty risk missing important features of it. As an illustration, a government that raises taxes to pay for better public services, or better public health, may increase income poverty, while poverty or deprivations more broadly decrease. In a similar vein but in striking contrast to Picketty’s blockbuster, Capital in the 21st Century, Deaton takes a much broader view of inequality transcending its narrow economic boundaries. Much of his recent work accordingly focuses on health inequity by country/region, age, gender and over time. Many of the insights are rich and fascinating and some are surprising.

Not a narrow economist, Deaton argues compassionately that health inequalities are a moral concern. But whether these are seen as injustices depends greatly on how these come about. He argues that childhood inequalities arising from parental circumstances are key to understanding many of these injustices. So public interventions designed to mitigate harshness of such circumstances are necessary.

In a succinct and definitive observation, he points out that “The stories about income inequality affecting health are stronger than the evidence.” A case in point is that infant and child mortality in developing countries is “primarily a consequence of poverty so that, conditional on average income, income inequality is important only because it is effectively a measure of poverty. ” But this is only a small part of the explanation as mother’s health and literacy, hygiene and sanitation, low birthweight and discrimination between boys and girls matter immensely. Some of these concerns receive critical attention in other studies.

Taller populations are richer, and taller individuals live longer and earn more. In order to understand the relationship between health and wealth, he investigated the childhood determinants of population adult height, focusing on the roles of income and disease. In a sample of European countries and USA, there is a strong inverse relationship between post-neonatal (one month to one year) mortality, as a proxy for disease and nutritional burden, and the mean height of those children as adults.

In a further scrutiny of the “wealthier is healthier” hypothesis, Deaton and Case report direct comparisons of a number of objective and subjective measures of economic and health status in two sites, one in the district of Udaipur in rural Rajasthan, and one in the shack township of Khayelitsha near Cape Town. This hypothesis is rejected in both cases. To illustrate, the economically better-off South Africans are healthier in some respects, but not in others. They are taller and heavier, but their self-assessed health is no better; they suffer from depression and anxiety to the same degree. The explanation lies in the multidimensionality of health, weak correlations between some components, and with income.

A distillation of his recent research is contained in his book, The Great Escape: Health, Wealth and the Origins of Inequality, 2013. His major conclusion is that not only people are becoming more prosperous but also they are living longer and are taller and stronger. The gap between life expectancy in advanced countries and the developing world has shrunk. However, a stark reality is that a billion poor are stuck in abject poverty and low life expectancy. His assertion that aid is likely to do more harm than good because governments are weak, fragile and corrupt is not without merit but contestable.

In an analysis based on the Gallup World Poll, Deaton investigates the relationship between subjective well-being and age. One of his major findings is that there is a U-shaped relationship between evaluative well-being (or life satisfaction) and age in high income, English speaking countries, with the lowest level of wellbeing in the age-group 45-54 years. But this pattern is not universal. The relation between physical health and well-being is bidirectional. Older people with coronary heart disease and arthritis, for example, exhibit higher levels of depression and impaired hedonic wellbeing (feelings of happiness, sadness and pain). But wellbeing could also have a protective role in health maintenance.

Deaton’s enthusiasm for using subjective wellbeing and self rated health status measures, based on Gallup Poll and other similar surveys, rests on the premise that instead of relying on revealed preference through markets we might as well use actual preferences. But the important point is that revealed preferences are subject to some restrictions consistent with rationality while actual preferences are not. Also, some of the simplistic statistical methods and averages used are far from persuasive and intriguing. My admiration for Deaton’s scholarship, however, remains undiminished by these disagreements.

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