October 12, 2015 12:30 pm

Ferdinando Giugliano, Economics Correspondent

Angus Deaton, winner of the 2015 Nobel prize for economics

Angus Deaton, a British-born economist at Princeton University, has won the Nobel Prize for economics for his pioneering work intowhat determines poverty and how people make their consumption decisions.

The Royal Swedish Academy of Sciences said Mr Deaton was awarded the prize “for his analysis on consumption, poverty and welfare”.

“[His research] shows an impressive breadth in its approaches: basic theory; statistical methods fortesting theories; in-depth knowledge of the quality of existing data; and extensive work on producing new kinds of data.”

A dual US and British citizen, Mr Deaton is the first native Briton to win the Nobel Prize in economics since Clive Granger in 2003. Hejoins a select list of academics who have won the SKr 8m (£630,000) prize by himself, including his predecessor, the French academicJean Tirole.

Mr Deaton’s work has employed innovative statistical techniques to understand what drives people’s shopping habits and howgovernments can better target economic development. He has spearheaded the use of more precise microeconomic data to understandwhat happens in an economy as a whole, questioning well-known assumptions and helping to solve apparent paradoxes on the relationbetween consumption and income.

“Natural scientists are often sniffy [about the Nobel prize in economics], as they don’t regard it as scientific,” John Muellbauer, aneconomist at Oxford university who has worked with Mr Deaton told the FT. “This is an exception, it is evidence-based economics ofthe highest standard.”

Together with Mr Muellbauer, Mr Deaton compiled a system of equations to understand how consumer decisions regarding differentgoods interacted. This is essential for governments planning to make policy changes such as cutting VAT for some products, as thesedecisions will have varying effects on different groups of consumers depending on what they buy.

He built on work looking at the link between consumption and income by fellow Nobel laureates Franco Modigliani and MiltonFriedman to understand how changes in income drive changes in consumption. He warned against using aggregate data for the wholeeconomy to justify important policy decisions and showed how it is essential to understand what happens to different groups ofconsumers, depending on their age or income levels.

“A lot of people have worked on consumption since John Maynard Keynes,” said Orazio Attanasio, an economist at University CollegeLondon. “Angus Deaton is one of the few people who understands consumption behaviour deeply, both across individuals and over

©EPA

Printed from: http://www.ft.com/cms/s/0/1c2b99e4-70ce-11e5-ad6d-f4ed76f0900a.html

Print a single copy of this article for personal use. Contact us if you wish to print more to distribute to others.

RELATED TOPICS

Turkey after deadly attack FirstFT — Dell’s big deal,Ferrari’s IPO

VW's home town blues

time.”

Finally, he advocated the importance of building extensive data sets on consumption patterns to understand the determinants ofpoverty. Contrary to what was previously assumed, he showed that increasing people’s income leads to a better food intake. As a result,there was little empirical reason to orient aid programmes only towards food as opposed to fostering economic growth, as someagencies had recommended.

“In the 1980s, research into economic development was mostly theoretical and, where it was empirical, it was based on aggregate datafrom national accounts. This has now changed,” said the Royal Swedish Academy of Sciences.

“Development economics is a flourishing empirical research field based on the advanced analysis of detailed data from individualhouseholds. Deaton’s research has been an important driving force in this transformation.”

Born in 1945 in Edinburgh, Mr Deaton earned his doctorate in economics at Cambridge university, with a thesis titled “Models ofconsumer demand and their application to the United Kingdom”.

He subsequently moved to the University of Bristol and then, in 1983, to Princeton University, where he is now the Dwight D.Eisenhower Professor of International Affairs.

.

In 2013, Mr Deaton published “The Great Escape”, a survey of wealth, wellbeing and inequality since the early 19th century. It was longlisted for the FT’s business book of the year award. The British economist argued that the main barrier to progress in fighting poverty inthe world’s poorest countries is bad government rather than a lack of resources. He also criticises global aid, arguing it can do moreharm than good.

Mr Deaton is a long-term critic of the official poverty line, which the World Bank has used to measure deprivation across the globesince 1990. Last month, the Bank raised its level to $1.90 per day from $1.25.

In a recent interview with the Financial Times, Mr Deaton said the poverty line was misleading and accused the bank of a conflict ofinterest.

“You’ve got a line that no one knows where to put it,” Mr Deaton told the FT. “I think [the World Bank] has some institutional biastowards finding more poverty rather than less.”

More coverage of Nobel Prizes

Nobel literature prize Nobel chemistry prize Nobel Peace Prize

©Getty©AFP

Angus Deaton, winner of the 2015 Nobel prize foreconomics

October 12, 2015 6:15 pm

Ferdinando Giugliano, Economics Correspondent

Angus Deaton has won this year’s Nobel Prize in economics for a string of landmark findingson 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 littlehesitation 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 hissometimes 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 the21st 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 economicdisparities.

“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 publicservices to the erosion of democracy. But at the same time, inequalities can also be a product of success, for example when they are theresult 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 muchrevenue.”

Foreign aid

Development economics has been dominated by a controversy over the effectiveness of foreign aid, with some, including WilliamEasterly, 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 wouldotherwise 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 canlead to corruption and create social tensions between the ruling elites and the public.

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 toeach 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 longstandingproblems 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.

©EPA

Printed from: http://www.ft.com/cms/s/0/b60c2e76-70f0-11e5-ad6d-f4ed76f0900a.html

Print a single copy of this article for personal use. Contact us if you wish to print more to distribute to others.

© THE FINANCIAL TIMES LTD 2015 FT and ‘Financial Times’ are trademarks of The Financial Times Ltd.

RELATED TOPICS

Turkey after deadly attack FirstFT — Dell’s big deal,Ferrari’s IPO

VW's home town blues

Promoted By Zurich Insurance Group

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 longstandingcritic 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 sureit 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 termsof 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 inwellbeing.

“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 thatworld 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 peopletrying to make themselves feel better.”

PROMOTED CONTENT

Who is the main breadwinner in your home?

Have you pictured what you’d do without their income? David Swaden remembers being at an insurance conference when someone spoke about the high number ofwidows in America living below the poverty line because their husbands had died without adequate insurance. See more...

This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers visithttp://www.djreprints.com.

http://www.wsj.com/articles/angus-deaton-awarded-nobel-prize-in-economic-sciences-1444649456

Princeton University Prof. Angus Deaton, who was awarded the 2015 Nobel Prize in economics for his analysisof consumption, poverty and welfare. PHOTO: PRINCETON UNIVERSITY/EUROPEAN PRESSPHOTO AGENCY

READ MORE

Nobel Winner Angus Deaton, At a Glance (http://blogs.wsj.com/economics/2015/10/12/nobel-prize-in-economics-who-is-angus-deaton/)

Magic Number for Happiness: $75,000 a Year (http://www.wsj.com/articles/SB10001424052748703467404575486310348815640) (Sept. 12, 2010)

Nobel Peace Prize Awarded to Tunisian National Dialogue Quartet (http://www.wsj.com/articles/nobel-peace-prize-awarded-to-tunisian-national-dialogue-quartet-1444382662)

Scientists’ Work on DNA Repair Earns Nobel Prize in Chemistry (http://www.wsj.com/articles/nobel-prize-in-chemistry-awarded-to-tomas-lindahl-paul-modrich-and-aziz-sancar-1444212531)

Nobel Prize in Physics Won by Takaaki Kajita and Arthur B. McDonald for Work on Neutrinos(http://www.wsj.com/articles/nobel-prize-in-physics-won-by-takaaki-kajita-and-arthur-b-mcdonald-for-work-on-neutrinos-1444126197)

Nobel in Medicine Awarded to Three for Advances Against Tropical Diseases (http://www.wsj.com/articles/nobel-prize-in-physiology-or-medicine-awarded-to-william-c-campbell-satoshi-omura-youyou-tu-1444038938)

Nobel Prize in Literature Awarded to Svetlana Alexievich (http://www.wsj.com/articles/nobel-prize-for-literature-awarded-to-svetlana-alexievich-1444304784)

Copyright 2014 Dow Jones & Company, Inc. All Rights Reserved

This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. Fornon-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.

Game of Nobels: The Top 10 THE WALL STREET JOURNAL

Game of Nobels: The Top 10

October 12, 2015, 10:59 AM ET

ByNick Timiraos

A picture of British economist Angus Deaton, winner of the 2015 economics Nobel Prize, is seen on a screen asmembers of the Royal Swedish Academy of Sciences address a news conference in Stockholm on Monday.

MAJA SUSLIN/TT NEWS AGENCY/REUTERS

Before the work of French economist Thomas Piketty transformed the U.S. political discussion onincome inequality last year, Princeton economist Angus Deaton devised important new ways ofmeasuring household consumption, living standards and poverty that shaped the current politicaleconomy debate.

Those contributions earned Mr. Deaton the Nobel Memorial Prize for Economic Sciences on Mondayfrom the Royal Swedish Academy of Sciences. The academy said Mr. Deaton’s contributions to thestudy of individual consumption had provided crucial insights for policy makers addressing economicwelfare and poverty reduction.

Angus DeatonLARRY LEVANTI/PRINCETON UNIVERSITY/AFP/GETTY

Mr. Deaton, a week shy of his 70th birthday, was born in Scotland and is a dual citizen of the UnitedKingdom and the United States. He earned his Ph.D. at Cambridge University and moved to the U.S.in 1983 to teach at Princeton University.

The Nobel committee highlighted three key questions that Mr. Deaton’s research had informed:

How do consumers distribute their spending?

How much do individuals save and spend their own income?

How should poverty be measured?

The academy described the academic contributions that Mr. Deaton made to economics, includingmodels that challenged existing methods for how to measure consumer demand for goods and thatimproved the understanding of how individual consumption levels vary in ways that can’t be seenin aggregate.

Here’s one good example that the academy draws attention to in its summary of his work that provides aflavor of his contributions to the field:

For a long time, economists have labored with the idea that a

country may become stuck in a poverty trap. Low incomes can

result in such low calorie intake that people cannot work at full

capacity—thus their incomes remain low, and so does their

calorie intake. The question of poverty traps is important in

designing international assistance to the poorest countries. If

assistance is geared towards encouraging economic growth, but

increasing income still does not lead to noticeably increased

calorie intake, there is an argument for reorienting assistance

towards direct food aid. Deaton’s research on the relationship

between income and calorie intake has shed important light on

this issue: increased income does indeed lead to more calories

being consumed. On the other hand, the evidence does not

support the hypothesis that malnutrition explains poverty. In

other words, malnutrition is largely the consequence of a low

income, not vice versa.

In recent years, Mr. Deaton has focused more attention on measuring and reducing global poverty, alongwith income inequality, while providing a particular emphasis on India and Africa.

He publishes a biannual column on developments in U.S. political economy and wrote a 2013 book oninequality. Those writings have covered a wide range of topics that include the need for regional pricemeasurements, the risks of too much regulation in academia, the dark side of extreme income inequalitythat corrodes basic state institutions like the courts, and the failures of foreign aid to improve outcomesfor the poor. One report on the minimum wage debate and the way it has divided the economicsprofession was written nearly 20 years ago, but the themes in it have aged little.

Related reading:

Angus Deaton Awarded Nobel Prize in Economic Sciences

Copyright 2015 Dow Jones & Company, Inc. All Rights ReservedThis copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by

copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visitwww.djreprints.com

Economists React: Angus Deaton Nobel Prize a ‘Brilliant Selection’

Who’s Going to Win the 2015 Nobel Prize in Economics?

http://nyti.ms/1NBlvSL

BUSINESS DAY

By BINYAMIN APPELBAUM OCT. 12, 2015

The economist Angus Deaton has devoted his career to improving the data that

shape public policy, including measures of wealth and poverty, savings and

consumption, health and happiness.

Taking advantage of faster computers and an explosion of newly accessible

information, he assembled the details of many individual lives to better

understand the sweep of economic trends.

On Monday around 6:10 a.m., when his wife handed him the telephone, Mr.

Deaton, a professor at Princeton University, learned that he had won the 2015

Nobel Memorial Prize in Economic Science.

“To design economic policy that promotes welfare and reduces poverty, we

must first understand individual consumption choices,” the Royal Swedish

Academy of Sciences said in announcing the economics prize, the last of this

year’s Nobels. “More than anyone else, Angus Deaton has enhanced this

understanding.”

Professor Deaton’s name has appeared for years on lists of likely laureates

even though he lacks a namesake theory or defining breakthrough. Despite his

relative obscurity, his colleagues and peers said he deserved recognition for

refining a rigorous approach to studying economic development based on careful

consideration of detailed data.

“Suppose you wanted to understand the effect of a subsidy on rice on the

well-being of farmers,” said Dani Rodrik, a Harvard professor of international

political economy. “He has produced an approach that you can actually use with

household data to trace through the effect of something like this on the well-being

of different farmers.”

Professor Deaton also has championed the collection and use of new kinds of

data, particularly about developing countries that often lack the statistics readily

available in the United States.

In his presidential address to the American Economic Association in 2010,

Professor Deaton criticized some popular poverty measures, such as the count of

people living on less than $1 day. He said measures like that overstated the

prevalence of poverty; he encouraged increased reliance on surveys of individual

household circumstances.

“Simple ways of looking at the world are often the basis of policy, and if the

statements are wrong, then the policy may be wrong also,” said the economist

Janet M. Currie, a Princeton colleague. “He’s always had a concern for trying to

capture the complexity of the real world.”

Professor Deaton also has collaborated in recent years with the psychologist

Daniel Kahneman, a fellow Princeton professor and a previous economics

laureate, on work showing that happiness increases with income, but only up to

about $75,000 a year. (Measures that ask people to assess overall well-being

show that more money helps beyond that figure.)

Professor Deaton, 69, was born in Scotland and educated at Cambridge

before taking a job at Princeton in 1983. He is a British and American citizen.

Professor Currie, a former student of Professor Deaton’s and now his

nominal boss as chairwoman of the economics department at Princeton,

described him as “enormously funny and witty and well read, frighteningly

erudite and very good company.”

In an interview on Monday, Professor Deaton said he had taken an interest

in economic development because “there’s a real moral urgency to understanding

how people behave and what we should or might be able to do about it.”

He said the circumstances of his upbringing also played a role.

“I grew up in Edinburgh,” he said. “It was a cold, messy and miserable place

to grow up, and I dreamed of going to tropical, colorful, hot countries.”

Economics before the 1980s relied on the assumption that the people

represented by a large economic aggregate behaved in roughly the same way, not

because that made sense but because accounting for diversity was too hard.

Faster computers allowed the creation of models that incorporated

differences in behavior. The Nobel committee cited Professor Deaton’s work

around 1980 in modeling demand for individual goods, which was both some of

the earliest work in that vein and a model that remains in wide use.

In continuing his research, he found that rising incomes tend to improve

calorie intake for the poorest families, but the effect diminishes at higher income

levels. Aggregate statistics, as a result, obscured the benefits of income gains for

very poor families.

“What he’s shown is that you do learn a great deal more by looking at the

behavior that underlies the aggregates,” said Duncan Thomas, an economist at

Duke University and another former student.

Professor Thomas said he also admired Professor Deaton’s clarity. “He will

bring evidence to the table in a way that makes you say, ‘Well, of course that has

to be right,’ ” Professor Thomas said.

Professor Deaton said he hoped “carefulness in measurement” would be his

legacy. He said his mentor, Richard Stone, a Cambridge professor who won the

Nobel in economics in 1984, had ingrained in him the importance of good data.

“I’ve always wanted to be like him,” Professor Deaton said. “I think putting

numbers together into a coherent framework always seemed to me to be what

really matters.”

His work also is marked by an insistence that theories must explain these

more complicated sets of facts. “A good theoretical account must explain all of the

evidence that we see,” Professor Deaton wrote in a 2011 essay on his life in

economics. “If it doesn’t work everywhere, we have no idea what we are talking

about, and all is chaos.”

He has perhaps contributed more to the disruption of old understandings

than the creation of new ones.

“There’s a fair amount of policy agnosticism that comes from this — it

emphasizes more the heterogeneity of outcomes,” Professor Rodrik said of

Professor Deaton. “He’s somebody with quite a sharp tongue, and he’s often had

as his target people who make very strong statements about this policy or that

policy.”

Proponents of foreign aid programs are a frequent target. Professor Deaton

has argued that such investments often undermine local governance and the

development of institutions necessary to sustain development.

One conclusion his writings have emphasized is the astonishing break

between most of human history and modern times.

“Life is better now than at almost any time in history,” he wrote in the

opening lines of his 2013 book “The Great Escape,” a popular account of his work.

“More people are richer and fewer people live in dire poverty. Lives are longer

and parents no longer routinely watch a quarter of their children die.”

He counts climate change and increased economic inequality in developed

nations as threats to this progress. He has noted in other work that inequality

occurs naturally because of divergent luck, but he has said that the growing gaps

in recent years pose a new economic and political challenge.

“I think inequality has gone past the point where it’s helping us all get rich,

and it’s really becoming a serious threat,” he said. Professor Deaton said he was

“pretty sleepy” when he took the telephone from his wife Monday morning.

“I was surprised and delighted,” he said. “It was wonderful to hear the voices

of my friends on the committee.”

A version of this article appears in print on October 13, 2015, on page B1 of the New York edition withthe headline: Economics Nobel for Angus Deaton of Princeton .

© 2015 The New York Times Company

HuffPost India | By Jacob Koshy

Posted: 12/10/2015 17:53 IST Updated: 12/10/2015 18:06 IST

Angus Deaton, the Princeton economist who's been awarded this year's Nobel for Economics has been awarded for trying to draw the linksbetween poverty, consumption and welfare.

The Nobel Prize Foundation lists among his achievements: the system for estimating the demand for different goods that he and JohnMuellbauer developed around 1980; the studies of the link between consumption and income that he conducted around 1990; and the workhe has carried out in later decades on measuring living standards and poverty in developing countries with the help of household surveys.

However important aspects of Deaton's work deal with India and have contributed to clarify (and provoke) discussions on the most accurateway to measure poverty in India. Here are some of those:

1. Poverty And Inequality In India:This paper published along with economist Jean Dreze of the Ranchi University, in 2002 was part of a special series on poverty in India.Deaton and Dreze argued that the liberalization of the Indian economy in the '90s failed to improved nutrition by any significant measure inIndia. While there was certainly a fall in the number of people who lived in poverty, it was much less than official estimates.

The abstract in the Economic And Political Weekly goes:

poverty decline in the 1990s proceeded more or less in line with earlier trends. Regional disparities increased in the 1990s, with thesouthern and western regions doing much better than the northern and eastern regions. Economic inequality also increased withinstates, especially within urban areas, and between urban and rural areas. We briefly examine other development indicators, relating forinstance to health and education. Most indicators have continued to improve in the nineties, but social progress has followed verydiverse patterns, ranging from accelerated progress in some fields to slow down and even regression in others. We find no support forsweeping claims that the nineties have been a period of 'unprecedented improvement' or 'widespread impoverishment'.

2. Angus Deaton and Alessandro Tarozzi argued about the limitations of household surveys, the favoured method, inestablishing poverty numbers.

The abstract from the June 2007 study goes:

We use data from the 2000 census of Mexico to construct synthetic “household surveys” andto simulate the poverty mapping process. In this context, our simulations show that while thepoverty maps contain useful information, their nominal confidence intervals give a misleadingidea of precision.

Also Read: 2015 Economics Nobel Prize Awarded To Britain-born Angus Deaton

3. Angus Deaton and Valerie Kozel published a seminal review analysing the range of the positions and debates that the numbers on India'spoor had provoked.

They argued that issues that ought have been left to statisticians were taken over by politicians and concluded that "although poverty fell inthe 1990’s, the extent of the decline in rural areas might have been overstated by official numbers."

4. Angus Deaton in an intellectual clash with Arvind Panagariya, of the Columbia University and now chairman of the Niti Aayog sought to

13 October 2015

iOS app Android app More Log in Create Account

Log In Make HuffPost Your Home Page RSS FAQ User Agreement Privacy Policy

About Us Contact Us Archive

Copyright ©2015 Times Internet Limited (and its licensors). All rights reserved.

Part of HPMG News

Conversations

MORE:

defend the position that the the heights of Indian children, were below the world average because of poor nutrition and not, as Panagariyaendeavoured to show, a result of "genetic programming."

This is the abstract as it appeared in the pages of the Economic and Political Weekly in August 2013:

Indian children are very short, on average, compared with children living in other countries. Because height reflects early life health andnet nutrition, and because good early life health also helps brains to grow and capabilities to develop, widespread growth faltering is ahuman development disaster. Panagariya acknowledges these facts, but argues that Indian children are particularly short because theyare genetically programmed to be so

Opinion

Like Us On Facebook |Follow Us On Twitter |

Contact HuffPost India

Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel Angus Deaton Poverty Debate India Princeton Jean Dreze News News Business Business

0 Comments Sort by

Facebook Comments Plugin

TopTop

Add a comment...

Huffington Post Search

Angus Deaton and the Dodd-Frank Election October 12, 2015 9:16 am October 12, 2015 9:16 am 71 Comments

Political contributions of hedge funds

Angus Deaton has won the Nobel, which is wonderful — dogged, careful empirical work at the micro level, tracking and making sense of individual households, their choices, and why they matter.

Oh, and cue the usual complaints that this isn’t a “real” Nobel. Hey, this is just a prize given by a bunch of Swedes, as opposed to the other prizes, which are given out by, um, bunches of Swedes.

Anyway, Deaton is also a fine writer with important things to say about political economy. Cardiff Garcia excerpts a passage in which he explains why we should care about the concentration of wealth at the top:

[T]here is a danger that the rapid growth of top incomes can become self-reinforcing through the political access that money can bring. Rules are set not in the public interest but in the interest of the rich, who use those rules to become yet richer and more influential.

…

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.

As if to illustrate his point, this remarkable piece of reporting by Confessore, Cohen, and Yourish documents the remarkable fact that campaign finance this election cycle is dominated

by a tiny number of extremely wealthy people — more than half the total from just 158 families. This money is overwhelmingly flowing to Republicans.

Some analysts suggest that this is just because there’s more action on the Republican side, with the field still wide open. But I’m pretty sure that’s nothing like the whole story. The biggest piece of the super-rich-super-donor story is money from the financial sector. And there has, as the chart above shows, been a huge swing of finance capital away from Democrats to Republicans that began in the 2012 election cycle — that is, after the passage of financial reform. Basically, we’re looking at the people who brought you the financial crisis trying to buy the chance to do it all over again.

Free exchangeEconomics

Economics

Oct 12th 2015, 12:00 by C.R. | LONDON

ANGUS DEATON has been named the winner of

this year's Sveriges Riksbank prize in economic

sciences in memory of Alfred Nobel. Mr Deaton is

a Britain-born economist (Scotland, to be

specific), who earned his PhD in economics at

Cambridge University before moving to America;

he is now at Princeton University. Mr Deaton is

best known for his work on consumption theory,

welfare and inequality.

The committee awarded him the honour “for his analysis of consumption, poverty, and welfare”.

His work “linking detailed individual choices and aggregate outcomes” was praised for having

helped to “transform the fields of microeconomics, macroeconomics, and development

economics”. According to the Royal Swedish Academy of Sciences’s website

(http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2015/press.html) , his

work has helped to provide answers for three big questions in economics:

How do consumers distribute their spending among different goods? Answering

this question is not only necessary for explaining and forecasting actual

consumption patterns, but also crucial in evaluating how policy reforms, like

changes in consumption taxes, affect the welfare of different groups. In his early

work around 1980, Deaton developed the Almost Ideal Demand System—a flexible,

yet simple, way of estimating how the demand for each good depends on the prices

of all goods and on individual incomes. His approach and its later modifications are

now standard tools, both in academia and in practical policy evaluation.

How much of society's income is spent and how much is saved? To explain capital

formation and the magnitudes of business cycles, it is necessary to understand the

interplay between income and consumption over time. In a few papers around 1990,

Deaton showed that the prevailing consumption theory could not explain the actual

relationships if the starting point was aggregate income and consumption. Instead,

one should sum up how individuals adapt their own consumption to their individual

income, which fluctuates in a very different way to aggregate income. This research

clearly demonstrated why the analysis of individual data is key to untangling the

patterns we see in aggregate data, an approach that has since become widely adopted

in modern macroeconomics.

How do we best measure and analyze welfare and poverty? In his more recent

research, Deaton highlights how reliable measures of individual household

consumption levels can be used to discern mechanisms behind economic

development. His research has uncovered important pitfalls when comparing the

extent of poverty across time and place. It has also exemplified how the clever use of

household data may shed light on such issues as the relationships between income

and calorie intake, and the extent of gender discrimination within the family.

Deaton's focus on household surveys has helped transform development economics

from a theoretical field based on aggregate data to an empirical field based on

detailed individual data.

The award comes at a time when there is rising academic and popular interest in the study of

inequality. Several economists, including Anthony Atkinson (http://www.economist.com

/news/books-and-arts/21653596-anthony-atkinson-godfather-inequality-research-growing-

problem-mind-gap) of the London School of Economics (who was among the leading contenders

for a Nobel prize this year) and Thomas Piketty (http://www.economist.com/blogs

/freeexchange/2014/02/inequality) of the Paris School of Economics (who is still a bit too young

for one), have published widely-read volumes on the subject over the last two years. Mr Deaton

published his, The Great Escape: Health, Wealth, and the Origins of Inequality

(http://www.economist.com/news/business-books-quarterly/21587755-measuring-fairness-

sickness-and-health) , in 2013. In it, he argued that while most people in the world have gained

in terms of health and well-being from GDP growth over the last few decades, there are many

groups that have missed out, particularly if on measures beyond those most commonly

examined.

Although the book has not generated as many newspaper column inches

(http://www.economist.com/news/finance-and-economics/21601567-wonky-book-inequality-

becomes-blockbuster-bigger-marx) or as much public recognition as Mr Piketty’s blockbuster

(http://www.economist.com/news/finance-and-economics/21601567-wonky-book-inequality-

becomes-blockbuster-bigger-marx) , Capital in the 21st century (http://www.economist.com

/blogs/economist-explains/2014/05/economist-explains) , the book’s main conclusions have

gone down well in the scholarly community. As we wrote more than a decade ago: "Mr Deaton is

perhaps the only economist at work in this area who is acknowledged by all sides both as

authoritative and as having no ideological axe to grind." That may well have also been why he

was awarded the prize earlier today.

For those readers who want to read more about Mr Deaton's research and his career in more

detail, here are some links that may be of interest:

Our review (http://www.economist.com/news/business-books-quarterly/21587755-measuring-

fairness-sickness-and-health) The Great Escape: Health, Wealth, and the Origins of Inequality

(http://www.economist.com/news/business-books-quarterly/21587755-measuring-fairness-

sickness-and-health)

Our look at Mr Deaton’s work on economic growth and happiness (http://www.economist.com

/node/9475891)

A look at Mr Deaton’s research on inequality from 2004 (http://www.economist.com

/node/2498851)

On Mr Deaton’s innovative use of polling data in economic analysis (http://www.economist.com

/node/21531437)

Economic inequality

Measuring fairness

Oct 12th 2013 | From the print edition

The Great Escape: Health, Wealth, and the Origins of Inequality. By Angus Deaton.

Princeton University Press; 360 pages; $29.95 and £19.95. Buy from Amazon.com

(http://www.amazon.com/exec/obidos/ASIN/069115354X/theeconomists-20) , Amazon.co.uk

(http://www.amazon.co.uk/exec/obidos/ASIN/069115354X/economistshop-21)

IS THE world becoming a fairer as well as a richer place? Few economists are better equipped to

answer this question than Angus Deaton of Princeton University, who has thought hard about

measuring international well-being and is not afraid to roam through history. Refreshingly, Mr

Deaton also reaches beyond a purely economic narrative to encompass often neglected

dimensions of progress such as better health. “The Great Escape” he has in mind is the one from

early death as well as deprivation that had begun with Britain’s industrial revolution. Mr

Deaton’s account is broadly optimistic though he is careful to portray the casualties as well as the

victors.

Pessimistic commentators will point out that income gaps between countries have failed to

narrow over the past 50 years. This overall lack of convergence is surprising since in principle

the more backward an economy the greater its scope for rapid catch-up growth. Some countries,

such as Malaysia and Thailand, have realised that potential. But others, especially African states

like Congo and Niger, have actually become poorer.

But focusing on gaps between states, many of which are small, neglects the fact that the two

countries with the biggest populations, China and India, have been growing rapidly for decades.

China’s economic miracle has been pivotal in bringing down global poverty from around 1.5

billion in the early 1980s to 800m. Even though China itself is becoming more unequal (as are

advanced countries like America), the fast growth of such a big, poor country should be enough

to bring down global inequality.

That appraisal rests on what has been happening to incomes or GDP per person, assuming that

actual growth in China and India has been as fast as officially stated. One particular strength of

Mr Deaton’s approach is that he does not confine his investigation to material living standards.

Not only are people becoming more prosperous but also they are living longer and are taller and

stronger. When improvements in health are taken into account, even more inroads are being

made into global inequality. The gap between life expectancy in advanced countries and the

developing world has shrunk since the second world war.

If the overall trend is encouraging, though, the list of countries lagging behind has grown longer.

Countries and individuals who get going leave others behind. That inevitable consequence of

progress can be beneficial by spurring the laggards to catch up. But Mr Deaton worries about

recent trends in America where the rewards from economic growth are increasingly and visibly

monopolised by the very well-off, leaving living standards for the majority stagnating. For Mr

Deaton, America serves as an example of the economic and political threats to well-being that

come from plutocracy.

The starkest evidence of the inequality arising from uneven progress is the plight of the billion or

so people stuck in developing countries who still live in abject poverty and have low life

expectancy. Should the more fortunate, enjoying longer and more affluent lives, give more

money to help them? No, argues Mr Deaton in the most controversial part of his book. He takes

aim at global aid, arguing that with the exception of some health programmes it generally does

more harm than good (a critique made long ago by Peter Bauer of the London School of

Economics).

Mr Deaton argues that the main barrier to progress in poor countries is not lack of resources but

bad governments. Yet it is these governments that receive the aid either directly or indirectly.

The flow of foreign money undermines governments’ incentives to raise money from their own

taxpayers, which in turn requires growth-friendly policies and reformed institutions. Instead it

shores up ill-functioning governments, the very misfortune holding back poor countries.

“The Great Escape” covers a lot of ground and there will be points that other scholars may

dispute, such as what caused life expectancy to rise in countries like Britain before the medical

advances of the post-war period. But the theme requires a big canvas and bold brushwork, and

Mr Deaton capably offers both.

From the print edition: Business books quarterly

Polls, wealth and happiness

The rich are different from you and me—and they say they are happier

Jul 12th 2007 | From the print edition

EVERY summer, the world has its temperature taken twice—once by climate scientists, literally;

a second time by opinion pollsters, metaphorically. This year two new surveys have thrown up a

lot of fresh data on how the world really feels. And they have, so the pollsters say, cast some

unexpected light on the link between wealth and happiness.

Ever since social scientists at the University of Pennsylvania found that mansion-dwelling

American millionaires are barely happier than Masai warriors in huts, some economists have

been downplaying the link between cash and contentment. In a 2005 book, Richard Layard, a

British scholar, said family circumstances, employment and health all mattered more to a sense

of well-being than income. Rich countries might be happier than poor ones, but beyond a

threshold, the connection weakens, and more cash would not buy more happiness—so the theory

goes.

The new polls cast some doubt on that school of thought. They add weight to the contention that

growth and income play a big part in boosting people's satisfaction with life and their attitude to

the future.

One of these surveys claims to be the first genuinely global opinion poll. Called World Poll, and

conducted by the Gallup organisation, it spans 130 countries, many of which are being polled for

the first time. Other surveys are smaller. The respected Global Attitudes Survey of the Pew

Research Centre, an offshoot of an American charity, operates annually in just over 50 countries.

The World Values Survey run from the University of Michigan is more comprehensive (over 80

countries), but updated only once in five years.

Gallup's pollsters asked a standard question: how satisfied are you with your life, on a scale of

nought to ten? In all the rich places (America, Europe, Japan, Saudi Arabia), most people say

they are happy. In all the poor ones (mainly in Africa), people say they are not. As Angus Deaton

of Princeton University puts it, a map of the results looks like an income plot of the world (see

map). There are some exceptions: Georgia and Armenia, though not among the world's poorest

states, are among the 20 most miserable. Costa Rica and Venezuela, though middle-income

countries, are among the 20 happiest. The Brazilians, pictured above, seem a bit more cheerful

than their income level justifies.

But in general, declared levels of happiness are correlated with wealth. The pattern also seems to

hold true within countries, as well as between them. Rich Americans are happier than poor ones;

rich Brazilians happier than poorer ones.

The other

new

survey, by

Ipsos,

confirms

the

picture.

Top of its

list of 20 countries ranged by happiness is the rich Netherlands (with Gallup, it is Finland);

China is bottom. The survey also asked questions about confidence in the future, whether your

children will be better off than you are, and so on. Regardless of countries' current income, there

was a close correlation between GDP growth and optimism, with China, India and Russia most

optimistic; France, Germany and Italy were the least. If both polls are right, the Chinese are

pretty miserable now but they expect a dramatic turn for the better.

The Ipsos poll is not strictly comparable to Gallup's because (for the first time) it asks questions

of what Ipsos calls “leaders and shapers of public opinion”, mostly business people and

politicians. This group has distinctive views—it takes a loftier view than the general population

(see table). The gap between elite and popular perceptions is especially sharp in Russia, India

and China. In those countries, top people's attitudes are far more upbeat than those of the

general population. In Europe and America, the attitudes of the elite are roughly in line with—or

slightly more pessimistic than—society as a whole.

In fairness, the “new happiness” economists, such as

Mr Layard, never claimed there was no connection at

all between money and feeling good. What they have

said is that once people climb out of poverty, the link

is weak, and may not work at all above a certain point

(as one British pundit put it, extra money “is now

proved beyond doubt not to deliver greater happiness,

nationally or individually”). The evidence for this

comes from surveys in most rich countries (such as

America's general social survey), which show that happiness has been flat for decades, even

though incomes have risen sharply.

On the face of it, the new findings are a counter-point to the earlier data. If the richest countries

report greater “happiness” than moderately rich ones, that would suggest there is no quantifiable

level of income at which extra cash fails to deliver extra contentment. Still, the latest findings

don't invalidate the historic experience of particular countries—like the United States—which

have surged to greater levels of wealth without experiencing any rise in general levels of reported

happiness.

But if you treat history as bunk and concentrate on the levels of satisfaction that countries feel

right now, the results are—in Mr Deaton's view—quite striking. He has compared Gallup's

satisfaction score with national income based on purchasing-power parities, and got a close fit.

So what should one make of the contradiction between these surveys and previous evidence?

Definitional problems may provide part of the explanation. These are self-reported polls and

people mean different things by “happiness”. Cultural problems are likely to be much greater

when 130 states are involved.

Another possibility is that “happiness” is really a proxy for something else, such as health.

Perhaps the main point is that money mitigates poor health, so the rich are happier than the

poor mainly because they feel healthier. But that cannot be the whole story. More than half the

20 countries with the lowest level of satisfaction with health are in the ex-Soviet Union or

eastern Europe though in statistical terms they seem relatively well off. In contrast, much poorer

African countries (with a far higher incidence of HIV/AIDS and other diseases) express higher

levels of health satisfaction. Expectations, or memories, may be at work: medical woes in an

ex-communist state feel worse because people recall, albeit through rose-tinted spectacles, an

era of full health coverage.

Lastly, as the Ipsos poll clearly shows, happiness and optimism are not just different, they can be

contradictory. The Chinese are dissatisfied but upbeat; Europeans are happy now but dread

tomorrow. Many links between happiness, income and optimism have yet to be teased out. This

new data—though not the last word on the subject—should help.

From the print edition: International

Special report:

Global economic inequality

Is economic inequality around the world getting better or worse?

Mar 11th 2004 | From the print edition

CRITICS of capitalism are convinced that the gap between rich and poor is widening across the

world. For them, the claim amounts almost to an article of faith: worsening inequality is a sure

sign of the moral bankruptcy of “the system”. Whether rising inequality should in fact be seen as

condemning capitalism in this way is a question worth addressing in its own right. There are

reasons to doubt it. But it would also be interesting to know the answer to the narrow factual

question. Is the familiar claim that capitalism makes global inequality worse actually true?

Unfortunately, this apparently straightforward question turns out to be harder to answer than

one might suppose. There are three broad areas of difficulty. The first is measuring what people,

especially the poorest people in developing countries, consume. The second is valuing

consumption in a way that allows useful comparisons to be made across countries and over time.

And the third, in effect, is settling on an appropriate basis of comparison. Which matters more,

for instance: whether inequality is widening among nations, or whether inequality is widening

among all the people of the world, regardless of which country they happen to live in? Judging

any claim about global inequality is impossible without a clear understanding of how the

researchers concerned have dealt with all three questions.

The third deserves to be emphasised at the outset. A thought-experiment reveals how easy it is to

get muddled. Suppose it is true that inequality measured across countries is widening. (In other

words, the gap between average incomes in the richest countries and average incomes in the

poorest countries, measured without regard to changes in population, is growing.) Also suppose

that inequality is worsening within every individual country. Given that cross-country inequality

is widening, and that within-country inequality is getting worse as well, it would have to follow

that global inequality, measured across all the world's individuals, is rising too, would it not?

Actually, no. Even if those first two assumptions were true, global inequality measured across all

the world's individuals might well be falling.

How so? Simply add a third assumption: namely, that a group of poor countries accounting for a

big share of all the poor people in the world was growing very rapidly. Suppose, for instance, that

average incomes in India and China were growing much faster than average incomes in the rich

industrial economies. Then it could be true that inequality was widening within every country,

including within China and India themselves; and also that the gap between the very poorest

countries (of sub-Saharan Africa) and the richest (Europe and the United States) was widening;

and yet, at the same time, that inequality measured across all the individuals in the world was

falling fast, because average incomes in the two most populous poor countries were rapidly going

up.

It so happens that average incomes in India and China are going up extremely rapidly. Without

knowing anything else, one should therefore be sceptical about all the claims that are so

confidently made about rising “global inequality”.

Attentive readers of The Economist will remember seeing before the panel of charts shown

below. (They first appeared in a presentation given at the beginning of 2003 by Stanley Fischer,

former deputy chief of the International Monetary Fund, to the American Economic Association.

We wrote about them in this article (/node/2003511) of August 23rd last year.) We make no

apologies for showing them to readers again: at a stroke, they cut through much of the statistical

fog surrounding this subject.

In both charts, the horizontal axis shows the average level of GDP per head in 1980, and the

vertical axis shows the rate of growth in inflation-adjusted GDP per head between 1980 and

2000. For the moment, concentrate on chart 1, which shows each country as a single point.

If it were true, on average, that

incomes in poor countries

grew faster between 1980 and

2000 than incomes in rich

countries, then the points in

chart 1 would tend to lie on a

downward-sloping line. In that

case, one would say that the

poor countries were on average catching up—and that global inequality measured across

countries was trending downwards. In fact, as the first chart shows, poor countries are not on

average catching up. A line of best fit drawn through the points actually slopes upwards,

implying that the poor are falling behind, and that cross-country inequality is getting worse.

But now look at chart 2. This plots the same countries as circles with areas drawn in proportion

to population. India and China stand out, both by virtue of their vast populations and also

because their growth record in the 1980s and 1990s was so much better than the poor-country

average. A population-weighted line of best fit drawn through this second chart would indeed

slope downwards, implying both catch-up and narrowing inequality.

In short, once you take account of the fact that China and India have performed so well since

1980, and especially since 1990, together with the fact that these two countries account for such

a big share of all the world's poor, it is difficult to stay as pessimistic about global trends in

poverty and inequality as the critics of global capitalism wish to be. In effect, these critics must

blind themselves to the extra information in the second chart.

Unfortunately, however, Mr Fischer's admirable diagrams say nothing about poverty as such:

they contain no information about how many of China's people, or America's or any other

country's, are poor. And they say nothing about whether growth in any particular country is good

for poor people living there (of course, growth raises incomes on average by definition). To look

more carefully at these questions one must peer through a cloud of statistical and econometric

chaff.

Much of the frequently acrimonious debate among economists about global poverty and

inequality turns out to revolve around a single technical issue: is it better to measure

consumption (and hence living standards) using data drawn from national accounts or data

drawn from household surveys? The two sources ought to marry up. In fact they differ

systematically, and by a wide margin. Worse, growth in consumption, not merely levels of

consumption, differs persistently according to which source is used. National-accounts data tend

nearly always to give a much more optimistic view of trends in poverty than do household-survey

data.

Accordingly, in a recent review of the literature* (#footnote1) by Angus Deaton of Princeton

University (Mr Deaton is perhaps the only economist at work in this area who is acknowledged

by all sides both as authoritative and as having no ideological axe to grind) two sets of studies are

contrasted. The first draws mainly on national-accounts data, the second on household surveys.

Their results are at odds.

Work by Surjit Bhalla, by Xavier Sala-i-Martin, and by Francis Bourguignon and Christian

Morrisson shows rapid—indeed historically unprecedented—falls in poverty during the 1980s

and 1990s, the new golden age of global capitalism. According to these papers, the proportion of

the world's people living on less than a dollar a day (inflation adjusted) has fallen so quickly that

the decline has been enough to offset rising population in the developing countries. In other

words, the number of people in poverty has been falling not only as a share of the world's

population but also, remarkably, in absolute terms.

Mr Sala-i-Martin's calculations, for instance, show that the proportion of the world's people

living in acute poverty (on less than a dollar a day) fell from 17% in 1970 to 7% in 1998; the

proportion living on less than $2 a day fell from 41% to 19%. The absolute headcount of global

$1-a-day poverty fell, according to the same estimates, by 200m (see chart 3); and the count of

$2-a-day poverty fell by 350m. Mr Bhalla, who finds the sharpest drop in poverty of these

authors, wryly states that in 2000 when the United Nations (UN) announced its Millennium

Development Goal on poverty—to bring the number of people living on less than a dollar a day in

2015 down to half the level in 1990—the goal had already been achieved.

But this is not at all the picture that emerges from

the second, and far more widely cited, set of

estimates. Calculations by the World Bank, using

direct surveys of households, carry the official

imprimatur of the UN, which uses them in

monitoring progress towards its Millennium

Development Goal on poverty. And they seem to

show relatively little reduction in poverty over

recent decades.

A paper by Shaohua Chen and Martin Ravallion of

the Bank lays out the thinking behind the Bank's

estimates. The authors put the proportion of people

living on less than a dollar a day at 28% in 1987—far

higher than the corresponding figure according to

Mr Sala-i-Martin's work. By 1998, the proportion in

poverty had in fact fallen (something which you

might not guess if you listened only to those who

deplore the wickedness of global capitalism), but only to 24%. Compare that with Mr Sala-i-

Martin's estimate of just 7%.

That discrepancy draws attention to the danger of focusing too much on the dollar-a-day

threshold. That is a crowded part of the global income distribution. For this reason alone,

switching from one data source to another, or moving the official poverty line from one level to

another, is apt to have a large effect on the figures. This underlines the importance of not

regarding any of these numbers as holy writ.

Still, the question remains, why are the differences so big? Several factors are at work. The World

Bank attempts to measure “consumption poverty”, as opposed to “income poverty”. To the extent

that poor people manage to save, their consumption will be less than their income, and so there

will be more poor people on the Bank's definition. Also, the Bank expresses its poverty ratios as

proportions of population in the developing countries; Mr Sala-i-Martin, for instance, uses

global population; the effect is to make Mr Sala-i-Martin's estimates, other things equal, smaller

than the Bank's. Country samples also vary from study to study. And on top of all this comes the

effect of basing estimates on national accounts rather than on household surveys.

It is revealing to consider why, according to the Chen-Ravallion study, poverty fell relatively

slowly on their household-survey measure. It was not because of an increase in within-country

inequality—in other words, brisk growth in average consumption was not being hogged by the

better off. It was because growth in average consumption was slower than what growth in

national incomes, as measured in the national accounts, would lead you to expect. Growth in

consumption per head across the countries in the Chen-Ravallion sample was less than 1% a year

between 1987 and 1998, according to the household surveys. Growth in consumption per head

according to the national accounts was more than 3% a year.

Mr Deaton notes that a plethora of new data has so far failed to resolve this issue “because the

new sources are mutually contradictory”. Summing up, he states: “If the surveys are wrong, and

the national accounts right, either inequality has been widening in ways that our data do not

appear to show, or poverty has been falling more rapidly than shown by the dollar-a-day counts.

If the surveys are right, there has been less growth in the world in the 1990s than we are used to

thinking.”

It would be a mistake to presume that either source of data is better in principle. Surveys are

famously prone to error because of bad or fluctuating design, discrepancies in samples and poor

execution. But national accounts have drawbacks as well, especially in poor countries. For

instance, they fail to capture some sorts of non-market income and consumption. This makes

them prone to understate the consumption of the poor, but also to overstate the growth of

consumption of the poor as incomes rise and as more activities fall within the scope of market

transactions.

Still, most of the discrepancy between the survey estimates and the national-accounts

estimates—with the surveys persistently pessimistic on trends in poverty—is probably due to the

fact that as people get better off, they are less likely to respond (accurately, or at all) to surveys.

As a result, as countries get richer, the ratio of “survey consumption” to “national-accounts

consumption” is usually found to fall. Consistent with this, the ratio of the two measures is

highest in the poorest countries.

Mr Deaton argues that both sources ought to be used, though combining them properly raises a

host of difficult technical issues. Meanwhile, the truth about global poverty and inequality

presumably lies somewhere between the extremes suggested by the two methodologies.

One can at least conclude that the official World Bank data, used by the UN and other agencies,

are too pessimistic: poverty has most likely fallen faster than these widely cited figures suggest,

and possibly fast enough to reduce the global headcount of those living on less than a dollar a

day, even as population rises. More accurate answers will require more work to be done. In the

meantime, however, the official position on global poverty ought to start, at a minimum, to

acknowledge the uncertainty surrounding the figures and, further, to concede that the truth is

likely to be better than the official figures say.

But what of the fear that global capitalism is making progress at the expense of the poor? The

true figures would probably be quite reassuring on this—but even if the more pessimistic official

figures were correct, it would be worth questioning the conclusions that the anti-globalists draw

from them. If poverty was proving as tenacious in the face of growth as the Bank's estimates say,

would it make sense to blame global capitalism for that?

Hardly. On any estimate, poverty is at its most impervious in sub-Saharan Africa. Look again at

charts 1 and 2. The countries of sub-Saharan Africa are represented by the white circles. These

are not just the poorest countries in the world, but also the slowest-growing. Can it be plausibly

claimed that these countries are the victims of globalisation? That would be an odd conclusion,

given that sub-Saharan Africa's economies are so comparatively isolated from the rest of the

world economy—by force of history, circumstance and, to a large extent, the policies of their own

and other governments. Sub-Saharan Africa plainly suffers not from globalisation, but from lack

of it. The focus of attention should be on how to extend the benefits of international economic

linkages to the region. Removing every rich-country barrier to trade with these countries would

be an excellent place to start.

By contrast, India and China are showing how great the benefits of international economic

integration can be. Neither country is an exemplar of free-market capitalism—far from it. But it

is undeniable that both countries have consciously chosen to seize the opportunities afforded by

the global economy, through both trade and foreign investment. As incomes surge, while the

living standards of the poorest improve more modestly, if at all, inequality within both countries

may well be rising. The gaps between urban and rural incomes, especially, have widened lately.

This may prove a temporary phenomenon. But suppose otherwise; suppose the problem persists.

Would any such worsening of inequality entitle one to conclude that India and China had taken a

wrong turn these past 20 years? Of course not. Look at Africa to understand that there are worse

things than inequality.

* “Measuring Poverty in a Growing World (or Measuring Growth in a Poor World)

(http://www.wws.princeton.edu/deaton/working.htm) ”, revised February 2004, by Angus

Deaton (included extensive further references); “The World Distribution of Income

(http://papers.nber.org/papers/w8933) ” by Xavier Sala-i-Martin; NBER Working Paper 8933;

“Imagine There Is No Country: Poverty, Inequality and Growth in the Era of Globalisation

(http://bookstore.iie.com/merchant.mvc?Screen=PROD&Product_Code=348) ” by Surjit

Bhalla, Institute for International Economics; “How Well Did the World's Poorest Fare in the

1990s? (http://www.ingenta.com/isis/searching/ExpandTOC

/ingenta;jsessionid=2fii9aud49d1t.crescent?issue=infobike://bpl/roiw/2001/00000047

/00000003&index=1) ” by Shaohua Chen and Martin Ravallion, Review of Income and Wealth

47 (3); “Inequality Among World Citizens: 1820-1992 (http://ideas.repec.org/a/aea/aecrev

/v92y2002i4p727-744.html) ” by Francois Bourguignon and Christian Morrison, American

Economic Review 92 (4).

From the print edition: Special report

Economics focus

Americans are not as gloomy as economic data might suggest

Oct 8th 2011 | From the print edition

WILL the next presidential election see Barack

Obama return triumphantly to the White House

for a second term as president of the world's

biggest economy? Or will a sluggish economic

recovery, which has left over 14m Americans out

of work, doom him to defeat in November 2012?

Models of the way economic factors affect

presidential elections already exist. The best known was developed in the late 1970s by Ray Fair,

an economist at Yale, who used macroeconomic indicators (such as inflation and the growth rate

of income per person) to predict the vote share of the two main parties in subsequent elections.

Mr Fair most recently updated his estimates at the end of July, when his model predicted a

victory for Mr Obama in 2012 with 53.4% of the vote. In releasing his predictions, however, he

noted that “a strong rebound results in a fairly solid Obama victory…and a double-dip

recession…results in a fairly solid Republican victory.” Democratic hearts will have skipped a

beat or two on hearing Ben Bernanke, the chairman of the Federal Reserve, say on October 4th

that the recovery was “close to faltering”.

But is it right to focus exclusively on macroeconomic indicators? Electoral fortunes surely

depend not just on the hard numbers but also on where the average voter believes his life is

going and on his overall sense of well-being. In a fascinating new study* (#footnote1) , Angus

Deaton, an economist at Princeton, draws upon more than a million data points collected during

daily telephone surveys of a representative sample of adult Americans. The polls were carried out

by Gallup between the beginning of 2008 and the end of 2010. Mr Deaton uses these data to

paint a portrait of how Americans view their lives in the aftermath of the financial crisis. Those

surveyed were asked to assess the overall state of their lives, as well as answer a series of

questions about how frequently they had experienced various emotions, ranging from worry to

stress to happiness, in the course of the previous day.

You could be forgiven for assuming that Americans would have become increasingly dissatisfied

with their lives over the course of that three-year period. Collapsing asset prices, including

unprecedented drops in the value of housing, Americans' biggest financial asset, meant that

three-fifths of households in America saw their wealth decline between 2007 and 2009. More

than a quarter lost more than half of their wealth. America's average annual unemployment rate

zoomed upwards, too: it went from 5.8% in 2008 to 9.3% in 2009 and 9.6% in 2010.

Yet the picture that Mr Deaton pieces together from the daily snapshots of Americans' state of

mind is a more nuanced one than this litany of woes would imply. Americans' evaluation of their

own well-being fell quite sharply between the last quarter of 2008 (with the first drop coming

soon after Lehman Brothers collapsed) and the beginning of 2009. It then soared briefly around

the time President Obama was inaugurated, before declining again. But by mid-2009, despite

rising joblessness and diminishing wealth, people's subjective assessment of how well their lives

were going was not just broadly stable but at levels well above those recorded during the depths

of the crisis, and higher even than they were in January 2008. Such effects varied by age and

income level. The negative effect of the financial crisis in late 2008 was twice as pronounced for

poorer people's assessment of their well-being than it was for the rich. The oldest people in the

sample were not only the most satisfied in general, but also the least affected by the mayhem

around them.

There were some signs of emotional turmoil. Levels of worry, stress and pain stood at slightly

higher levels in December 2010 than they did before the crisis. (That the overall level of

satisfaction exceeded its pre-crisis mark by the end of the study period, even as people got more

worried, may be because people adjust their notions of what constitutes a satisfactory life to

account for rising stresses and strains.) But these measures did not spike most dramatically

when there was bad news about the labour market. Instead, rising levels of worry and stress were

closely tied to stockmarket declines, and these emotions returned to more normal levels when

the markets recovered. It appears that changes in the unemployment rate do a poor job of

explaining when and how people's assessment of their own lives changes. That makes Mr Deaton

sceptical of campaigns by some economists to put “happiness” data at the heart of policymaking.

He wonders about the usefulness of measures of well-being that, in his words, “are affected more

by the arrival of St Valentine's Day than a doubling of unemployment”.

Damn the lot of them

Nor should supporters of Mr Obama heave too great a sigh of relief. For one thing, stockmarkets

are very bumpy at the moment. For another, Mr Deaton notes that when politics is mentioned,

people feel gloomier. They dislike politicians so much that even being asked for their opinion of

elected officials, as they were in a version of the survey, makes them much more negative about

how their own lives are going. Noticing this, Gallup dropped the political questions from the

survey for half the respondents, chosen at random, in order to be able to get a measure of life

satisfaction that is uncontaminated by politics. Adjusting the figures to include this politics-

induced blight suggests that overall well-being had not yet recovered to its pre-crisis levels by the

end of 2010. American voters may be less downbeat than the economic environment suggests

they should be; but having to think about whom to vote for, unavoidable at election time, could

yet send them spiralling.

* “The Financial Crisis and the Well-Being of Americans”, NBER working paper no. 17128, June 2011.

From the print edition: Finance and economics