Angus Deaton, Professor of Economics and International Affairs at Princeton University, has recently been awarded Nobel Prize in Economic Sciences in 2015. He is in receipt of the Nobel Prize for his analysis of consumption, poverty and welfare which is given the new focus on income inequality. Deaton was born in Scotland and holds American and British dual citizenship.
Angus Deaton has made a lot of contributions to the theory and measurement of the three fields. These fields include consumption demand systems, the fluctuation of consumption over time, and the measurement of consumption and poverty in the developing world. He has written a major book in each field to share his deep insights. The aim of these three books and the research is to have served as “door-openers”. Each setting has a clear agenda for which his subsequent research has greatly been applied. Though the three fields are quite different, Deaton’s research on them shares the same general themes which have a long lasting influence on the modern macro-economic research.
When Deaton worked with the World Bank, he played an important role in expanding data in the developing countries. He also brought a good deal of methodological individualism to the field of consumption studies. He worked most of all by using household surveys more than macroeconomic data. He worked extensively from the bottom up. His measuring the welfare sounds very simple but doing it on a right way is not as easy as we think. He consistently tried to apply theory and data closer together through his mastery of measurement and statistical methods. He also focused on the analysis of individual and aggregate outcomes closer together by attending to the issues of aggregation. In fact, a few scholars got themselves involved such a diverse set of methods in their own research. It helped us better understand the determinants of consumption as well as human welfare in particular.
Deaton looks more closely at what the poor households consume to get a better sense of their standard of livings and possible ways for the economic development. He deeply understands economic growth, the benefits of modernity and political economy and those of implications in general.
Deaton has had long a special working relationship with India and South Africa. He has worked on how to measure poverty globally in a consistent manner and ways and means forward. According to Angus Deaton, there are tremendous health problems in India including those of adults and children. Half of the children in India are still malnourished. There also have been a lot of progresses indeed in India. Still then, we have a lot of good things to do in front of us. He has done the detailed research work with household-level data-sets in the poor countries including India and South Africa so that anyone can understand the effects of changes in policies. There are a lot more poor people in rural areas of India. These areas have been affected with India’s subsidy system for the poor which allows them to buy the things of necessities. He also has written on gender discrimination within the family in the developing nations. The absence of state capacity is one of the major causes of poverty and deprivation around the world. Without effective states working with active and involved citizens, there is a little chance for the growth that is needed to abolish the global poverty.
In the book entitled The Great Escape (2013), Deaton expressed uncertainty about the effectiveness of international aid. China and India have upraised tens of millions of people living below the poverty line despite receiving relatively little foreign aid. At the same time, many African countries have remained to mire in poverty in spite of getting substantial foreign aid. In reality, we don’t have these ready-made solutions and money is not going to be the answer to many things. Rather, foreign aid increases corruption in the poor countries’ government system in general. It means that based on the foreign aid, we can’t move ahead fast. Thus, he has been known as one of the main critics of the foreign aid. We have to use our own available properties, resources as well as assets to move fast. Indeed, the foreign aid does not reach to the poor people at all.
Deaton has introduced to us about “Almost Ideal Demand System” which is a standard tool of governments’ use to study how a change has occurred in economic policy. For example: an increase in sales taxes on food will show how it will affect the different social groups and how large the gains or losses will be.
However, the committee of Nobel Prize has noted that Deaton’s work concentrates on around three questions. These are included as follows:
l How do consumers distribute their spending among different goods?
l How much of society’s income is spent, and how much is saved?
l How do we best measure and analyze welfare and poverty?
In order to bring and distribute the social welfare and to alleviate the poverty, we must study and assume the propensity of consumption in the personal level. The study of consumption leads naturally to the study of savings as well as consumption in the future period. We know about Keynes’s famous propensity to the consummation theory which tells us that consumption is a fraction of current income. Milton Friedman’s permanent income hypothesis tells us that consumption is a fraction of estimated lifetime income. Otherwise, Modigliani’s Life Cycle Hypothesis focuses on “borrow when young, save when middle-aged and dissave when old.” Deaton played a significant role in finding out a new dimension of theories.
Actually, Deaton is the economist of the economists. So, the Nobel price of 2015 in Economics for Angus Deaton’s great achievement of consumption, poverty, and welfare is undoubtedly a brilliant selection.
Dr M Azizur Rahman is a Vice-Chancellor, Uttara University