Princeton economist Angus Deaton was awarded the Nobel Prize in Economic Science on Monday “for his analysis of consumption, poverty and welfare.”
“His research concerns issues of immense importance for human welfare, not least in poor countries,” the Royal Swedish Academy of Sciences said in a statement today. “Deaton’s research has greatly influenced both practical policymaking and the scientific community. 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.”
The Swedish Academy awarded Deaton the Nobel Prize in Economics for his research in three related areas: first, his work on demand systems; second, for his work linking consumption and income; and lastly, for his work on measuring and understanding living standards and poverty in developing countries.
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The 69-year-old spent the late 1970s doing research on demand systems, which measure how prices and incomes affect individuals’ consumption choices. Deaton and John Muellbauer’s 1980 “Almost Ideal Demand System” was the first system to accurately capture real world demand patterns. That system, updated by subsequent researchers, is now a standard tool to study effects of economic policy.
In the 1980s, Deaton’s work focused on the relationship between income and consumption at the aggregate and individual level, and since the 1990s, he has focused on developing economies.
In his 2013 book, “The Great Escape,” Deaton examined the historical patterns between the health and wealth of nations. In it, he also made a surprising case against foreign aid, suggesting that political and commercial interests get in the way of helping the poor.
He also dove into the inequality debate in the United States, warning that extreme inequality threatens the wellbeing of all in this pointed passage:
If democracy becomes plutocracy, those who are not rich are effectively disenfranchised. Justice Louis Brandeis famously argued that the United States could have either democracy or wealth concentrated in the hands of a few, but not both. The political equality that is required by democracy is always under threat from economic inequality, and the more extreme the economic inequality, the greater the threat to democracy.
The very wealthy have little need for state-provided education or health care; they have every reason to support cuts in Medicare and to fight any increase in taxes. They have even less reason to support health insurance for everyone, or to worry about the low quality of public schools that plagues much of the country. They will oppose any regulation of banks that restricts profits, even if it helps those who cannot cover their mortgages or protects the public against predatory lending, deceptive advertising, or even a repetition of the financial crash.
To worry about these consequences of extreme inequality has nothing to do with being envious of the rich and everything to do with the fear that rapidly growing top incomes are a threat to the wellbeing of everyone else.
At the announcement of the prize, Deaton noted that poverty has decreased around the world, but he isn’t a blind optimist. “While I expect things to get better, you have to remember that we’re not out of the woods yet. For many people in the world it’s very bad indeed,” he said, noting the World Bank’s recent estimate that 700 million people live in extreme poverty and that nearly half the children in India are malnourished.
The 69-year-old microeconomist was born in 1945 in Edinburgh, United Kingdom, and holds both British and U.S. citizenship. He received his Ph.D. from the University of Cambridge in 1974. Since 1983 Deaton has taught at Princeton University, where he is the Dwight D. Eisenhower Professor of Economics and International Affairs. He’s conducted research in the United States, United Kingdom, India, South Africa and other countries, and his current scholarship areas are health, wellbeing and economic development.
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So what was the Nobel laureate’s reaction when he got the phone call this morning?
“I felt pretty sleepy!” Deaton said, laughing at the press conference announcing his award. He had, after all, received the phone call from the Nobel Committee at 6:10 a.m. EDT. “I’m so delighted, not just for myself, but that this sort of work is being recognized. That’s a wonderful thing.”
Interested in learning more about Angus Deaton’s work? Here are just a few of his recent papers:
- “Creative Destruction and Subjective Well-Being”: “Does higher (per capita) GDP or GDP growth increase happiness? The existing empirical literature on happiness and income looks at how various measures of subjective well-being relate to income or income growth, but without going into further details into what drives the growth process. Thus in his 1974 seminal work, Richard Easterlin provides evidence to the effect that, within a given country, happiness is positively correlated with income across individuals but this correlation no longer holds within a given country over time.”
- “Suicide, Age, and Wellbeing: An Empirical Investigation”: “[Reports] of physical pain are strongly predictive of suicide in many contexts. The prevalence of pain is increasing among middle-aged Americans, and is accompanied by a substantial increase in suicides and deaths from drug and alcohol poisoning. Our measure of pain is now highest in middle age–when life evaluation and positive affect are at a minimum. In the absence of the pain epidemic, suicide and life evaluation are likely unrelated, leaving unresolved whether either one is a useful overall measure of population wellbeing. ”
- “Grandpa and the Snapper: The Wellbeing of the Elderly Who Live with Children”: “For the elderly… our evidence suggests that living with children under eighteen is associated with worse outcomes on all measures… None of this is to argue that some of the elderly do not take pleasure in their grandchildren… But, on average, we can find no evidence of it.”