Monday, October 12, 2015

Angus Deaton wins the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel

For his work on "consumption, poverty and welfare" according to the press release. It wasn't Atkinson, for inequality, as I suggested it was possible, but given the other possibilities cited this is quite good. Deaton had received last year the Leontief prize, which usually goes to heterodox economists (the other Nobel to win the Leontief was Sen), together with Jamie Galbraith.

I should say, I recently read his The Great Escape. An interesting book, full of relevant data. But it does maintain the conventional neoclassical view on growth. Supply side constrained, and dependent on investment in education (aka human capital), and the institutions to guarantee investment (e.g. property rights, rule of law). The Douglas North New Institutionalist view. In his words:
“possession of common knowledge does not imply that all countries should have the same living standards. To be able to use rich-country methods of production requires rich-country infrastructure—roads, railways, telecommunications, factories, and machines—not to mention rich-country educational levels, all of which take time and money to achieve. Yet the gaps between rich and poor provide plenty of incentives to make the investment in that infrastructure and equipment, and, as Robert Solow showed in one of the most famous papers in all of economics, average living standards should draw closer over time. Why this has not happened is a central question in economics. Perhaps the best answer is that poor countries lack the institutions—government capacity, a functioning legal and tax system, security of property rights, and traditions of trust—that are a necessary background for growth to take place.”
It does say something about investment in infrastructure, and one can read the need for money as an acknowledgment that the balance of payments is an important restriction (but that might be reading too much). So as most mainstream economists he seems to think that lack of convergence is somewhat of a mystery. He says: “puzzling is the failure of the poor countries to catch up.”

There are interesting things in his book anyway. He does say, for example, that:
“One key to African growth is what happens to commodity prices. Many African countries have long been and are still dependent on exports of 'primary' commodities, mostly unprocessed minerals or agricultural crops. Botswana exports diamonds; South Africa, gold and diamonds; Nigeria and Angola, oil; Niger, uranium; Kenya, coffee; Côte d’Ivoire and Ghana, cocoa; Senegal, groundnuts; and so on. The world prices of primary commodities are notoriously volatile, with huge price increases in response to crop failures or increases in world demand and equally dramatic price collapses, none of which are easily predictable."
The preoccupation with commodity price volatility has a long history in economic development, but probably Raúl Prebisch and the economists at the Economic Commission for Latin America and the Caribbean (ECLAC) have been the pioneers and the most persistent in emphasizing its relevance. That tradition, of course, emphasizes demand as the engine of growth, and the balance of payments as its main constraint in peripheral countries.

More importantly, Deaton seems to take the profession and even the Nobel prize with humor and skepticism. Again from the book: “The great economist and Nobel laureate James Meade used to complain that the three great disasters of the twentieth century were the 'infernal' combustion engine, the population explosion, and the Nobel Prize in economics.”


  1. I like a lot of Deaton's work (his critiques of RCTs are spot on) but the quoted paragraph about Solow is yet another example of how economists become unable to think outside their models. Solow "showed" that living standards "should" converge over time, yet it's a puzzle that they don't? If they don't, then how exactly did Solow show they did? He made a model, sure, but why assume automatically that the model has any relationship with reality? There's no puzzle here if you don't take the model to be true!

    Then we get the list of buzzwords - which are unrelated to the basic Solow model - about institutions, education, infrastructure blah blah. Is he basically saying that if all countries were the same as developed countries then they'd be developed? That's the only thing I can glean from the idea that we need to change their culture, institutions, politics and so forth to be like ours.

  2. Do you disagree with the statement that if poor countries had the culture, institutions, human capital and infrastructure of rich countries they would be rich?

    1. I really don't know, but I don't see evidence for it. Rich countries themselves differ massively across many of these criteria.

    2. Hi Irineu, brief response, since I discussed this before in the blog several times. Institutions yes, culture and geography tend to be in my view of secondary importance. But the institutions that would be relevant are not simply or even fundamentally rule of law and property rights. Adam Smith said that the wealth of nations depended on the division of labor, and the latter on the extent of the market. So the institutions that allow for ample markets (demand) are crucial too. Of the ones you cite the only one I would agree as being central is, for that reason, public investment in infrastructure.

  3. The 2016 Leontief prize winner was none other than Amit Bhaduri....who knows...maybe there is yet some hope for (at least some of) us.


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