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Angus Deaton: a popular choice given the new focus on inequality Angus Deaton: a popular choice given the new focus on inequality
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Few will quibble with the choice of Angus Deaton as this year’s recipient of the Nobel prize in economics. Economics is split into two broad camps. In one group are the macroeconomists, who study the big picture. If a chancellor of the exchequer decides to cut VAT on domestic energy, they work out what it will mean for growth and jobs.
Deaton, born in Edinburgh in 1945, has had a long and distinguished academic career in both the UK and the US, and his areas of expertise are in tune with the interest in poverty and inequality prompted by the French economist Thomas Piketty. The other group is made up of microeconomists. Instead of working from the top down, they work from the bottom up. In the event that a government cuts VAT, they will look not at whether consumer spending will go up in aggregate, but at what it means for the poor, the rich, and those on middle incomes.
Announcing the decision, the judges noted that to design policies that promoted welfare and reduced poverty it was necessary to understand how individuals came to decisions about their consumption patterns. Angus Deaton, this year’s recipient of the Nobel prize in economics, falls into the second camp. He has built his reputation on meticulous study of household data to build up a picture of how individuals behave in practice rather than how they are supposed to behave according to the theory.
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This is a field Deaton has been working in throughout an academic career that has taken him from Cambridge to Bristol, and then across the Atlantic to Princeton. This empirical approach, pioneered in his early work at Cambridge and Bristol universities, and honed at Princeton in the US, has made the macroeconomics community sit up and take notice.
The broad themes of Deaton’s work were laid out in a paper he co-wrote with the economist John Muellbauer in 1980, An Almost Ideal Demand System. As the Royal Swedish Academy of Sciences noted: “The insights provided by Deaton’s work on consumption and income have had a lasting influence on modern macroeconomic research. Previous researchers in macroeconomics, from Keynes onwards, had relied only on aggregate data. Even if their purpose is to understand relationships at a macro level, today’s researchers usually start at the individual level and then, with great caution, add together individual behaviors to compute numbers for the entire economy.”
This work explains how public policy affects consumer decisions and was hailed as one of the 20 most influential articles published since 1970 in the prestigious American Economic Review. It is for this pathfinding work that Deaton, born in Edinburgh in 1945, has become the latest winner of the economics Nobel prize, first awarded in honour of Alfred Nobel in 1968. The fact that his areas of expertise are in tune with the interest in poverty and inequality prompted by the French economist Thomas Piketty may well have helped.
Piketty’s bestselling book, Capital, owes much to the detailed micro-economic studies conducted by Deaton and Tony Atkinson of Nuffield College, Oxford – there was some speculation that the prize might have been shared by the two economists this year. Piketty’s bestselling book, Capital in the Twenty-First Century, owes much to the detailed microeconomic studies conducted by Deaton and Tony Atkinson of Nuffield College, Oxford, and there was some speculation that the prize might have been shared by the two economists this year.
Deaton is not an economist who can be easily pigeonholed. While critical of widening inequality in the US, his work in the developing world has convinced him that the key to greater wellbeing is to promote economic growth rather than to support consumption though western aid packages.
In an article for Project Syndicate published two years ago, Deaton said: “The absence of state capacity – that is, of the services and protections that people in rich countries take for granted – is one of the major causes of poverty and deprivation around the world. Without effective states working with active and involved citizens, there is little chance for the growth that is needed to abolish global poverty.
“Unfortunately, the world’s rich countries currently are making things worse. Foreign aid – transfers from rich countries to poor countries – has much to its credit, particularly in terms of healthcare, with many people alive today who would otherwise be dead. But foreign aid also undermines the development of local state capacity.”
The broad themes of Deaton’s work were laid out in a paper he co-wrote with the economist John Muellbauer in 1980, An Almost Ideal Demand System. This work explains how public policy affects consumer decisions and was hailed as one of the 20 most influential articles published since 1970 in the prestigious American Economic Review.
Few if any economists doubted on Monday that he was a worthy Nobel winner.