An Economist Against GDP Worship

Trickle down economics, many suspect, is lazy economics. And not without reason. The benefits of a fast expanding economy can’t automatically be assumed to reach the poor, and so the demands of our conscience should push us out into the heat and dust to see what the badly-off are actually getting to consume. And for a response that’s effective against large-scale poverty, vast volumes of such data need to be gathered and studied properly, free of bias, not in the casual manner of the bored or indifferent. This appears to be the year’s message from the Royal Swedish Academy of Sciences, which has awarded the 2015 Nobel Prize in Economics to Angus Deaton, 69, a Scottish-born professor at Princeton who has dedicated his academic life to the detailed study of deprivation.

As the Nobel citation says, Professor Deaton has been awarded for his ‘analysis of consumption, poverty and welfare’; this has helped governments implement or improve consumption surveys, even eliminate or tweak taxes, in aid of the poor. The broad rationale: if the well-being of people at large is what needs to be tracked, then the money they earn is not always a valid proxy. Rather than start on top and then move down, the professor’s approach has been to begin where it matters most, right in people’s huts, and then work upwards. What one individual eats, after all, could differ from what the other does even at the same income level. ‘To design economic policy that promotes welfare and reduces poverty, we must first understand individual consumption choices,’ in the Academy’s words. ‘More than anyone else, Angus Deaton has enhanced this understanding… By linking detailed individual choices and aggregate outcomes, his research has helped transform the fields of microeconomics, macroeconomics and development economics.’

Professor Deaton’s best known book is The Great Escape (2013), which speaks of inequality as a threat to democracy, an issue he spoke of soon after winning the prize: a world in which “the rich get to write the rules”, he said, was a worry. The one that’s arguably had a bigger impact, however, was The Analysis of Household Surveys (1997). Not only was it held up as the book on the subject, it stirred up the Indian poverty scene. In The Great Indian Poverty Debate (2005), which he edited along with Valerie Kozel, Angus Deaton took a good hard look at the country’s numbers. As my review for Business Standard noted back then, it was alarming enough that India’s poverty statistics were at peril of being trashed as lies and damned lies, sincere efforts to uncover the true extent of the problem— as outlined in the book—would only leave one in greater dismay. Was the Free Market failing as alleviator-in-chief of poverty? If our have-nots looked better fed at the turn of the millennium than they did a decade earlier, said an essay in the book, it was because of a serious flaw in India’s National Sample Survey of Household Consumption. Professor Deaton’s own essay offered an ingenious way around that distortion. His idea was to use the Survey’s statistics that were free of that bias, and arrive at credible figures with the aid of conditional probability. The overall outcome was an upward revision of the proportion of underfed Indians. Even this method, for all it could salvage of a rotten data-set, could only offer a minimum estimate of poverty. Though Deaton did not explicitly say so, the math involved spoke for itself: actual poverty in India was probably even worse.

It left me stunned, that brush with the statistical shenanigans of poverty measurement, and ever more sceptical of data-derived claims one way or another. That’s no reason, however, to give up on the exercise of tracing what’s going on in the lives of those we rarely hear from. Doing this is difficult in a complex country where even the most earnest of surveys only offer an approximation of reality that could yet be off the mark, and Deaton’s focus on nutrition does have its critics. Yes, mass diets are currently in transition, with cereals being replaced with pulses for instance (a good sign). This does complicate matters, no doubt, but it also endorses what he has been saying all along: that trying to assess how badly off people really are must begin with real clarity on what they eat—and aspire to.

A Nobel Prize for Angus Deaton should serve as a reminder that so long as an ear to the ground is not lost, so long as people can say how they’d like to be better off, and so long as all this is amenable to analysis, policymakers can do something useful for the upliftment of the needy. Economics is not always about money. At its best, it’s about welfare.

Angus DeatoneconomicsGDP growthNobel PrizeThe Great EscapeThe Great Indian Poverty Debate