Earlier today the Royal Swedish Academy of Sciences announced that the Nobel Memorial Prize in Economic Sciences was awarded to economist Angus Deaton. Here are five facts about Deaton and his work:
1. Angus Deaton, aged 69, is a dual British and American citizen. In Britain he taught Cambridge Universityand the University of Bristol. In America he is the Dwight D. Eisenhower Professor of Economics and International Affairs at the Woodrow Wilson School of Public and International Affairs and the Economics Department at Princeton University. He is a corresponding Fellow of the British Academy, a Fellow of the American Academy of Arts and Sciences, and of the Econometric Society and, in 1978, was the first recipient of the Society’s Frisch Medal. Deaton was President of the American Economic Association in 2009, and has been elected a member of both the American Philosophical Society and the National Academy of Sciences.
2. Deaton won the Nobel prize for his “analysis of consumption, poverty, and welfare.” Deaton’s work on consumption (the use of goods and services by households), particularly in poor countries, helped to bridge the knowledge gap between individual economic choices and macroeconomics. As the Nobel committee says, “By emphasizing the links between individual consumption decisions and outcomes for the whole economy, his work has helped transform modern microeconomics, macroeconomics and development economics.”
3. A major contribution of Deaton’s work is in understanding and measuring world poverty. As Alex Tabarrok explains, “Deaton, working especially with the World Bank, helped to construct price indices for all countries that measure goods and services and he showed how to use these to make theoretically appropriate comparisons of welfare.”
4. One of the central questions Deaton attempted to answer was, “How do consumers distribute their spending among different goods?” This question, as the Nobel committee notes, is “crucial in evaluating how policy reforms, like changes in consumption taxes, affect the welfare of different groups.” To address this question Deaton developed the Almost Ideal Demand System—a way of estimating how the demand for each good depends on the prices of all goods and on individual incomes. His approach and its later modifications are now standard tools, both in academia and in practical policy evaluation, notes the Nobel committee.
5. Deaton forcefully argues that foreign aid undermines local government and likely does more harm than good to the poor.
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.
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.