Is This Year's New Nobel Prize Award in Economics a Curtsy to Thomas Piketty?

Angus Deaton has been awarded the 2015 Nobel Prize in economics.

He is a dual UK and US citizen, who was born in 1945 in Edinburgh, UK He has a Ph.D. 1974 from University of Cambridge and has been Professor of Economics and International Affairs at Princeton University since 1983.

It is worth noting that his most popular book, The Great Escape: Health, Wealth, and the Origins of Inequality was named after a Steve Mcqueen movie.


From the blurb to the book:

The world is a better place than it used to be. People are healthier, wealthier, and live longer. Yet the escapes from destitution by so many has left gaping inequalities between people and nations. In The Great Escape, Angus Deaton--one of the foremost experts on economic development and on poverty--tells the remarkable story of how, beginning 250 years ago, some parts of the world experienced sustained progress, opening up gaps and setting the stage for today's disproportionately unequal world. Deaton takes an in-depth look at the historical and ongoing patterns behind the health and wealth of nations, and addresses what needs to be done to help those left behind.

Deaton describes vast innovations and wrenching setbacks: the successes of antibiotics, pest control, vaccinations, and clean water on the one hand, and disastrous famines and the HIV/AIDS epidemic on the other. He examines the United States, a nation that has prospered but is today experiencing slower growth and increasing inequality. He also considers how economic growth in India and China has improved the lives of more than a billion people. Deaton argues that international aid has been ineffective and even harmful. He suggests alternative efforts--including reforming incentives to drug companies and lifting trade restrictions--that will allow the developing world to bring about its own Great Escape.

Here is an FT video where he discusses the book.

I am not a big fan of those concerend about inequality, especially in the United States and other developed countries. (SEE: This Is What Those Who Are Concerned About Inequality Fail to Grasp) nor am I big fan of government involvement in "solving" poverty here in the US, but Deaton does make an important observation when he points out the failures of international global organizations in helping cure poverty.

Casey Mulligan has more on both points:

 As part of the world becomes rich and no longer worries about day-to-day survival, it can look outward. Many residents of developed countries have a “need to help” those less fortunate.

But the attempts to help often – perhaps even usually – go awry. 

As medical progress began to diffuse around the world, people stopped dying so young, and that made for an increase in population, especially in less-developed countries. Developed countries thought they would help poor nations by encouraging population control, based on the dubious proposition that more people means more poverty.

“What the world’s poor – the people who were actually having all these babies – thought about all this was not given much consideration,” Professor Deaton says, citing China’s continuing one-child policy as an example. He adds: “The misdiagnosis of the population explosion by the vast majority of social scientists and policy makers, and the grave harm that the resultant mistaken policy did to many millions, were among the most serious intellectual and ethical failures of a century in which there were many.”

Other types of foreign aid to developing nations have also been a disaster, he says, with “pictures of starving children being used to raise funds that were used in part to prolong war, or to N.G.O.-funded camps being used as bases to train militias bent on genocide.”
Professor Deaton’s book is primarily international in focus, and he insists that help for the American poor is different and more effective than aiding the world’s poor.

Nevertheless, American readers may be left wondering how much aid to American poor, is, as Professor Deaton says, “more about satisfying our own need to help, and less about improving the lot of the poor.”

That said, Deaton does seem to be obsessed with inequality, including developed country inequality, as evidenced by this letter to the Royal Economic Society,

His seeming approving comments in the letter, of the anti-capitalist, inequality hater, Thomas Piketty, show us just how he expects his data collection work, which was singled out by the Nobel Prize Committee, to be used:

 Deaton spearheaded the use of household survey data in developing countries, especially
data on consumption, to measure living standards and poverty. In so doing, Deaton helpedransform development economics from a largely theoretical field based on crude macro data, to a field dominated by empirical research based on high-quality micro data.

He showed the value of using consumption and expenditure data to analyze welfare of the poor, and identified shortcomings when comparing living standards across time and place.

Deaton’s research has addressed issues of great practical significance, and his contributions have influenced policymaking in developing and developed countries. His work covers a wide spectrum, from the deepest implications of theory to the grittiest detail of measurement. The common themes are connecting theory and measurement, and linking micro and macro data by using relevant statistical methods. 

Bottom line: The Noble Committee appears to be making a curtsey toward the socialist Piketty, and his rage against inequality, with this year's award.

 -RW

Bill Gates Slams Thomas Piketty

Bill Gates has a blog post out attacking Thomas Piketty’s Capital in the Twenty-First Century. The post is sadly titled Why Inequality Matters.

The most humorous whopper in the post is this comment from the richest man in the world:

I very much agree with Piketty that..High levels of inequality are a problem...

Why Gates would buy into such a goofy perspective is difficult to understand. Inequality is inherently  the nature of the world. SEE: This Is What Those Who Are Concerned About Inequality Fail to Grasp.

But further, the case made by Gates against Piketty is very technical in nature and doesn't get to the essence of the problem, say, the way Gary North did in his destruction of Piketty.

Most bizarre, at one point, it seems that Gates is in favor of the decay of wealth:

Piketty is right that there are forces that can lead to snowballing wealth (including the fact that the children of wealthy people often get access to networks that can help them land internships, jobs, etc.). However, there are also forces that contribute to the decay of wealth, and Capital doesn’t give enough weight to them.

To be sure, wealth can disappear from one generation to the next, in cases where a second, or third, or fourth generation does not know how to husband capital properly, but this should not be something to be looked upon as a blessing. Great wealth over generations, outside of a crony system, suggests a consistent employment of capital in a manner that provides products others demand.

Perhaps this confusion about the nature of capital over generations is why Gates takes the opportunity of his review of Piketty to once again champion higher estate taxes:

Like Piketty, I’m also a big believer in the estate tax. Letting inheritors consume or allocate capital disproportionately simply based on the lottery of birth is not a smart or fair way to allocate resources. 

One thing is for sure, with this proposal. wealth would decay, especially when it is diverted to governments. So Gates would get his wish.

But Gates doesn't stop there and indicates he is truly clueless about the economy and how funds in the hand of governments are always an indication of funds that have been acquired by coercive transactions and thus do not compare to the win-win of voluntary transactions. In a coercive transaction, it the the subjects of the government taxation that object to the transactions. Thus they are transactions based on evil doing. Gates does not want to limit his proposed evil doing to the estate tax, he wants evil doing to continue against all of us and takes his Piketty review to make that clear, also:

I think we’d be best off with a progressive tax on consumption...As Piketty pointed out when we spoke, it's hard to measure consumption (for example, should political donations count?). But then, almost every tax system—including a wealth tax—has similar challenges.