Nobel Prize winner Angus Deaton shares 3 big ideas

Angus Deaton has won this year’s Nobel Prize in economics for a string of landmark findings on the study of consumption, which have shaped policy and academic studies across the world.

From global inequality to foreign aid, the 69-year old Scottish academic has displayed little hesitation in wading into sensitive debates that are linked to his 45-years-long research agenda.

Hours after receiving the news of his award, Mr Deaton shared with the Financial Times his sometimes controversial views on three of his biggest topics.

Inequality

From the rise of leftwing populists such as Jeremy Corbyn in the UK, to the unlikely popular success of Thomas Piketty’s Capital in the 21st century, inequality has become one of the defining issues of this decade.

Mr Deaton agrees it is important, but also has a more nuanced view than some of his colleagues who have also studied economic disparities.

“Inequality is an enormously complicated thing, that is both good and bad,” he says.

The Princeton academic believes that excess inequality can produce some negative side effects, ranging from the demise of public services to the erosion of democracy. But at the same time, inequalities can also be a product of success, for example when they are the result of successful entrepreneurship.

“Success breeds inequality, and you don’t want to choke off success,” he adds.

He is also sceptical of measures such as very high income tax rates as an antidote to growing disparities.

“We already have redistributive policies in place,” he says. “Putting, say, an 85 per cent income tax rate is unlikely to bring in much revenue.”

Foreign aid

Development economics has been dominated by a controversy over the effectiveness of foreign aid, with some, including William Easterly, an academic at New York University, arguing that it may do more harm than good.

Mr Deaton acknowledges that aid can be extremely useful, for example when it helps to fund hospitals and cure children who would otherwise die.

“That’s got to be a good thing,” he says.

However, much in the spirit of Mr Easterly, he too believes that excessive foreign aid can have unintended consequences, in that it can lead to corruption and create social tensions between the ruling elites and the public.

Podcast

Alphachat visits Angus Deaton, and a rush of pharma activity

Alphachat went on the road this week to visit Angus Deaton at Princeton University. Host Cardiff Garcia previews a few excerpts from his conversation with the 2015 Nobel Prize in economics winner. Then, the rush of activity in the pharmaceutical sector, including a potential Pfizer and Allergan mega-deal, is discussed by pharma correspondent David Crow.

Building on his 2013 book, The Great Escape, he puts forward two concrete ideas. The first is to cap the amount of foreign aid going to each country to, say, 50 per cent of its revenues.

The second is to push forward a “global public goods agenda”, which ensures that more aid money is spent on addressing longstanding problems such as mortal diseases, even if this means funding more research in the rich world.

“I am in favour of giving money not just in Africa, but for Africa,” Mr Deaton says, echoing his fellow academic Jagdish Bhagwati.

Poverty measurement

This month, the World Bank revised the official poverty line, pushing it up from $1.25 per day to $1.90. Mr Deaton, a longstanding critic of the poverty line, thought this was an improvement, but remained sceptical.

“Focusing on the number of people who are below the line is like chasing an unicorn through the woods,” he told the FT. “I am not sure it is wise for the World Bank to commit itself so much to this project”.

He thinks there is a lot more to poverty than just cash and cites India as an example of a country that has grown substantially in terms of per capita income but where education and health outcomes can often be dismal.

“I very much follow the thinking of Amartya Sen, though I am probably more interested than him in the issue of measurement” he says, citing the Harvard economist and fellow Nobel laureate who has argued that one should move beyond money to understand changes in wellbeing.

“There is more than just measuring income, though of course one can measure other things.”

He also criticised the 17 “sustainable development goals”, a set of targets and initiatives to reduce poverty promoted by the UN that world leaders committed themselves to last month. “I am not a great fan, there is no way to measure them. A lot of it is just people trying to make themselves feel better.”