Escape From Poverty: A Nobel Laureate’s Perspective

October 16, 2015

The Center’s Chief Economist weighs in on the new Nobel prize winner’s body of work.
October 12, 2015 – Yuwa Hedrick-Wong

More than 70 years ago, a group of plucky Allied airmen engineered an ingenious breakout from a Nazi prisoner of war camp, an iconic event that inspired the 1963 film The Great Escape. In borrowing the title of a classic war movie for his 2013 book, this year’s winner of the Nobel Prize in Economics Angus Deaton clearly intends to explain another incredible story: the decline in global poverty across the world over the last half a century. Deaton’s book, The Great Escape: Health, Wealth, and the Origins of Inequality meticulously documents the economic and social progress made with an abundance of data at both the household as well as the macro level.  Furthermore, in addition to focusing on the standard measures – GDP, per capita GDP, or household incomes – he combines data on health with income to create a more holistic perspective; this new approach enables him to assess more rigorously the illusive concept of wellbeing. The book encapsulates the virtues of vision, rigor, and creativity that he has displayed through the years he has conducted research.

Deaton’s data analysis is not only meticulous, but frequently dotted with creative leaps of imagination. For instance, he looks at the change in the heights of adult women against income over time to evaluate the quality of economic growth: adult heights are affected by early childhood nutrition and disease, and are correlated with mental development overall, hence productivity later on in life.  Mapping increases in the heights of adult women over time and against similar changes in adult men can tell a great deal about changes in the society apart from GDP and household incomes. Delving deeply into household consumption data, Deaton develops new measures for understanding whether gender inequality in the family context is getting better or worse. For example, does the adult consumption of goods like tobacco and alcohol drop when a family has a new birth? And is the drop is bigger when it is a boy rather than a girl?

One of his most outstanding contributions is to connect microanalysis at the household and individual level with the macro; a feature cited by the Nobel Committee in his prize award. He created a set of sophisticated demand equations to understand household consumption in terms of incomes, prices, and demographics. The equations offer new insights on how households allocate their income on different consumption needs, and by implications their ability to save under varying circumstances. In so doing, he was able to amend and upgrade previous works by Milton Friedman and Franco Modigliani, two Nobel Laureates no less, on consumption and income. His new insights further connect micro behavior and public policy, linking individual consumption decisions with overall economic growth.

The impacts of his insights extend to economic development. His careful analysis of household consumption decisions and patterns debunks the widespread and popular myth linking poverty with hunger. Anti-poverty campaigns often attribute low income and poverty to malnutrition and hunger – the poor are poor because they do not have enough to eat.  But Deaton’s work shows convincingly that malnutrition is caused by low income and poverty, not the other way round.  Hence conventional programs of direct food aid and anti-hunger campaigns are not only ineffective in raising the income of poor households (which is the effective way to end malnutrition and hunger), but can also be counter-productive. And poverty itself is a slippery concept. Fed up with how sloppily the term is used, Deaton has been instrumental in developing a robust framework for analyzing and defining poverty.

Much of the progress documented in Deaton’s The Great Escape over the past 50 years can be attributed to two countries, China and India. Many continue to be left behind. Like the film The Great Escape, not all the prisoners of war managed to escape; indeed, many were recaptured. So it is with the global economy today. Deaton openly admits that we don’t yet have all the answers as to how and why so many are left behind and why the gap between the richest and the poorest are still widening. Deaton’s work shows that advancing inclusive growth remains the foremost challenge of our time.

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