Opinion

What the winner of the Nobel Prize in economics can teach us about fighting global poverty

A look at the work of Angus Deaton

Meet Angus Deaton, Princeton economist and winner of the 2015 Nobel Prize in economics.

The Edinburgh, Scotland-born Deaton — who probably would not seem out of place in a Harry Potter movie — won the award for a lifetime of work on global poverty and how we might end it. The Nobel committee focused on Deaton's technical economic achievements, which are considerable: He helped revolutionize and define the modern field of development economics, with analyses of how people consume in different circumstances, and of how to most consistently measure income and poverty thresholds across many different nations. Deaton also brought the field down to Earth, by concentrating on data from extensive household surveys, making sure the outcomes from his mathematical models matched the results in the data, and building out from there.

Deaton's work pushed along the surveys and statistics that are now established habit at the World Bank and other international institutions — and its worth noting that his career is a testament to the enormous value of good and reliable data collection.

But since international trade and immigration remain topics of heated debate — all of which touch on the question of global poverty — it's also worth looking at the broader lessons Deaton has drawn from his work. He laid most of his wisdom out in his 2013 book The Great Escape, and it boils down to a few key ideas.

First, poverty is extremely complex. It's not just about money; it's about health, sanitation, nutrition, politics, violence, social norms, and a whole web of factors. This point emerges from Deaton's technical work, which helped economists understand how people trade off consumption in lots of different scenarios when faced with different prices, and how we can conceive of poverty across those contexts.

That leads to a second observation, which is that there is a kind of ratchet effect between wealth creation and inequality. There are lots of problems to solve, so as humanity comes up with solutions, they get road-tested one at a time by the most privileged members of society, then spread from there. That's why you can get horrendous inequities within and between nation states, even as global poverty falls dramatically.

But for Deaton, this does not imply that inequality is a good thing, or even a not-bad thing. In fact, he's forcefully argued that inequality hands the rich disproportionate social and political power, while also setting their interests over and against everyone else. So inequality that's high enough can actively thwart the processes by which those solutions make it out to society at large.

This gets to another point that comes up in Deaton's work, which is the overwhelming importance of well-functioning social institutions, especially the state. According to Deaton, there's something "we tend to forget about in rich countries, which is just how much we owe to government."

It's actually a dual-track problem. In rich countries, the problem is about distribution. There, the average wealth level per person is actually quite high. It's just that, in practice, a small number of people often get way more than that average, and many more get way less. But even in the most unequal countries, like the U.S., basic services, law and order, and social trust in institutions all work well enough to keep even our poorest citizens better off than the global poor. And in the best functioning countries, inequality is pretty low and well-being is widely distributed. The threat of rising inequality is that it will dismantle those accomplishments.

Poor countries face a much different challenge. Their governments and institutions do not work. Basic services and law and order are often hard to find, and institutions can't be trusted. There are massive failures of basic sanitation, infrastructure, education, and more, and government officials often act as parasites, extracting bribes and thieving whenever someone manages to create real economic development. A well-functioning government and society create the basic framework for wealth creation, and this above all is what poor countries lack.

This all leads to two more arguments Deaton has put forward that remain controversial. First, he's skeptical of randomized control trials — generally viewed as the gold standard for determining what works and what doesn't — precisely because global poverty is so complex it's almost impossible to create experiments that are genuinely randomized. You don't know if you've found a solution with broad applicability, or just a solution for people in one particular situation.

Second, he's deeply skeptical of the effectiveness of foreign aid, and thinks in many cases it does more harm than good. It short-circuits the basic contract between the governed and the government — better services in exchange for cooperation and taxes — and allows authorities in poor countries to rely, in perpetuity, on international organizations to provide basic services. As a result, the countries never develop the institutional functionality that people in rich countries take for granted.

This criticism has invited plenty of pushback, much of which points out that this is a reason to do international aid better and smarter rather than not do it at all.

But assuming Deaton's correct, it's worth thinking through possible solutions. The economist himself emphasizes a "first, do no harm" principle, which means rich countries should end the international arms trade, open up trade so poor countries can build their economies, and maximize access to innovations — especially in medicine and health care. For what it's worth, those last two points are strikes both for and against the Trans-Pacific Partnership. (Refraining from invading and occupying poor countries would probably also help.)

Deaton allows that disaster aid is obviously worthwhile, and that specific health assistance and direct transfers of cash to the poor — bypassing their governments entirely — is worth doing. Though he warns these cannot make up for a lack of functioning government; they're just unlikely to impede its formation.

Deaton's logic is also a powerful argument in favor of opening up the borders of Western nations, and maximizing the ability of people from poor countries to emigrate to our shores. A society with functioning institutions and high levels of trust is a difficult thing to achieve, and a remarkable resource where it exists. But we've managed to pull it off in the West. So yes, we should help the developing world pull off the same feat — or at a minimum not get in its way.

But another solution is to just let people living where society doesn't function so well come over to where it does.

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