Angus Deaton on Foreign Aid and Inequality
C. Peter McColough Series on International Economics with Angus Deaton
Dwight D. Eisenhower Professor of Economics and International Affairs, Woodrow Wilson School of Public and International Affairs, Princeton University; 2015 Recipient, Nobel Prize in Economics
UN Correspondent and Foreign Affairs Analyst, CBS News
Angus Deaton, the 2015 recipient of the Nobel Prize in Economics, joins CBS News' Pamela S. Falk to discuss foreign aid, global and national inequality, and globalization. Deaton describes his skepticism of the effectiveness of foreign aid, his interest in effective altruism, and assesses the social value of financial careers.
The C. Peter McColough Series on International Economics brings the world's foremost economic policymakers and scholars to address members on current topics in international economics and U.S. monetary policy. This meeting series is presented by the Maurice R. Greenberg Center for Geoeconomic Studies.
FALK: Welcome, welcome. Today I am delighted to be moderating this conversation with Angus Deaton at the Council on Foreign Relations meeting, which is part of the C. Peter McColough Series on International Economics and presented by the Maurice Greenberg Center for Geoeconomic Studies—maybe we can get to that at the end.
I would like to welcome all of the CFR members here in New York, as well as those around the country and around the world who are watching on livestream. And again, a reminder that this meeting is on the record.
Now let me tell you a little bit about Angus Deaton. He is the Dwight Eisenhower Professor of Economics and International Affairs at Princeton University’s Woodrow Wilson School, where he has taught for 30 years. Just a few months ago, he won the 2015 Economic Science Prize in Memory of Alfred Nobel for his analysis of consumption, poverty, and welfare.
Born in Edinburgh, Scotland, the British American son of a coalminer—you’ll have to tell that story as well. He is the author of five books, including most recently “The Great Escape”—which I have dog-eared, every page of it—“Health, Wealth, and the Origins of Inequality.” His B.A., M.A., and Ph.D. are from Cambridge University.
Now, I’d like to, in our 30 minutes before we turn to you for questions, go through basically four areas—foreign aid, global and national inequality, the case study of Professors Deaton and Case on suicides of middle-aged white Americans, and effective altruism—all in a whirl of a half an hour.
So let me just start by saying, in “The Great Escape: (Health, Wealth, and) the Origins of Inequality,” you make the case that the world is a better place. We live better. We live longer. We’re healthier. We’re wealthier. But you’ve been a critic of some forms of foreign aid to help those who are not as fortunate, basically, because money going to governments can cause more harm than good. You say in the book that it’s an endless dance between progress and inequality. And what I found really important was that the—one of the examples you use is that China and India have lifted tens of millions of people out of poverty despite receiving very little aid, while at the same time you see poverty entrenched in many parts of Africa, and they have received substantial sums. So maybe explain where the line is. Is there a sweet spot where some aid should go in? And why is it that aid can be bad?
DEATON: OK. Thank you very much for inviting me here, and I’m delighted to be here.
So let me say a little bit about foreign aid. I’m in favor of foreign aid, so it’s the kind of foreign aid that we’re talking about. And the kind of foreign aid I think is terrific is the sort of, if you like, the foreign aid that builds global public goods or that does work on health. For instance, there’s enormous advances in the understanding of HIV/AIDS, for instance, and vaccinations, and so on. These were all discovered and developed in the First World—there are a few exceptions—and gifted, as it were, to the Third World, and did enormous amounts of useful things there in saving people’s lives.
What Dr. Falk was referring to is I worry a lot about African countries where almost all government expenditure is coming from external sources. And that, to me, is the really crazy thing. And those governments have no incentives at all to respond to their people, because the only incentives the have are to deal with the aid agencies and to work with the aid agencies.
The China and India example she gave if you look at the percentage of GDP that India and China have had as aid, it’s completely trivial. Those are the great success stories. The stories that look very bad are the African ones. And if you just read the African literature and you read people who’ve worked there and worked with the aid agencies and worked with the governments, the corruptive effect of aid on these governments, of them turning away from their people, is just astronomical.
So I think—I accept the moral responsibility of us who are so well-off to do something about these people who are so poorly—so poor. But the moral responsibility we also have is not to hurt them, and I think a lot of aid has, unfortunately, been hurting. Not that every project is bad, but I think the long-term consequences.
So I would have a policy that says no government in Africa should be getting more than 20 percent of its government revenue on a permanent basis from abroad. Otherwise, it’s just not going to work. You need a contract between the government and the people if the country is going to develop at all.
FALK: All right. So, as a follow up in that—in the aid, is—where is the line? In other words, if it’s 20 percent for Africa, is there a moment in which you say no aid should be given? And is corruption a piece of it? How do you—how do you—how do you aggregate statistics or look at numbers and find about corruption? I mean, it used to be called “la fuga” in Latin America, the flight of capital. But how do you deal with that? And at what point do you just say there’s no aid?
DEATON: Well, I mean, I’m a pragmatist, I think. I think in the world as it is, trying to sell a policy of no aid is not going to happen, and it’s not worth talking about it, so I don’t go there. On the other hand—and just about corruption, I mean, there’s plenty of corruption in the world without aid, right? You don’t need aid to generate corruption. (Laughter.) The U.S. doesn’t receive a lot of aid, you know; we’re completely corruption-free, of course. (Laughter.) So that shows that—(laughs)—you know, it can’t just be aid.
So it’s not—the corruption is only part of it, though the corruption is the most visible part. I think what it is, is that economic development or political development or the sort of development that really matters ultimately comes, and historically has always come, from some sort of contract between the governed and the governs—the government and the governed. And that contract is deeply undermined if the government never has to raise any revenue, does not have to generate any services for its people, because essentially all it has to do is play games with the aid agencies.
FALK: And because I can’t let this one go, just one last, which is I just heard at the U.N. a briefing where some people were recommending giving cash, that that’s better. It seemed to—it was a shock to me because, how do you give cash? But is it better to give directly to the people, the people-to-people kind of programs? And does it matter what the government is, if it’s a dictatorship or it’s a democracy, in terms of aggregate numbers?
DEATON: Well, you know, Peter Barr (sp) said a very long time ago that in the conditions where the government was a good government and was working in the aid of their people, you don’t really need foreign aid. And in the countries where you really need foreign aid, where the people are suffering—those are the dictatorships—those are the places where, if you give the money to the government, it’s not going to work. So you’re caught in this fork all the time, which has never really been—and if you look at the aid agencies, they’re forever oscillating between one side and the other. They say we’ll give money to countries that are well-run, and they do, but of course that doesn’t do very much for poverty because that’s not where the poor people are. (Chuckles.) And then they say, OK, we have to give them to—and they have all sorts of euphemisms for this—“low-income countries under stress” was one that the World Bank had for a while, the LICUS countries. And that, of course, means they’re nasty dictatorships, they’re people we can’t trust. And so we have to give money there. Well, how do you give money there? Well, it’s awful, I mean.
And the idea—the cash idea has become very fashionable, which is, you know, we can give everybody a cellphone with a bank account on it, and we can ping money into their accounts, and all these people will be liberated. But, I mean, do you really think that a dictatorial government, in the end, would put up with that without managing to get a hold of that one way or the other? And, you know if a bunch of people are—you know, a bunch of researchers from MIT or from the U.N. are out there doing randomized controlled trials in those countries, they say, oh, people like getting money. Well, I knew that before they did that, you know? (Laughter.)
So the issue is not—it’s the unintended consequences of what happens in the long run if you give people lots of money. And, you know, if there’s enough money out there, the guys that run the country, you know, they’re going to get it. I mean, that’s what happens. That’s the nature of power. And I don’t think you can buy your way out of that. So I think mass cash—it’s one of these things that works on a small scale, you know, because—(chuckles)—the government thinks, ooh, we’ll let them do that; you know, they’re going to have this nice policy. The U.N.’s going to push the idea that gift transfers will encourage that, will hatch that chicken. And boy, when that chicken grows into a big hen, wow, you know? (Laughter.)
FALK: Ok, we’ve cooked that chicken. (Laughter.)
All right, now on to global—I love the fact that Professor Deaton has no notes. He is a laureate. I have—I have a million notes on everything you’ve written. But—
DEATON: Well, I wrote the book. It’s still in my head. (Laughter, laughs.)
FALK: And gone into the research. I mean, I think what’s most fascinating is the consumption research that for so many years the statistics of international organizations were based on surveys, and you’ve gone beyond that to look at what people actually do, not what they say they do.
But, now, global—you said that globalization improves the life of the poorest people, and that is a good thing, even if it hurts some rich people. But you also said that you’re not so sure anymore, which I found the most interesting—that, especially given the recent research that you and Professor Anne Case, your wife and coauthor, that illustrates a very alarming trend. And this is something most of us have read about recently, that the U.S.—U.S. middle-aged white Americans—middle-aged white Americans with relatively low education are experiencing rising mortality from alcoholism, drug addiction, and suicide. Now, that’s all at the same time that it is—that every other racial and ethnic group somehow has decreased, but this has increased. So something has gone terribly wrong. This seems to be, as I read and read and read, a point that is taken on the side of both Republican and Democratic campaigns. So somehow you’re—you can be seen in one way or another. So maybe explain—if you can explain what this survey says, why is it that middle-aged white Americans are killing themselves? (Laughs.)
DEATON: Well—(laughs)—you’ve said what we know. I mean, what we disclosed was the fact, and it’s pretty astonishing that no one had noticed this fact before. The CDC was jumping up and down with glee that the white-black mortality gap was closing, but a lot of that was happening because whites were dying in larger numbers. And so this turnaround is just historically an astonishing state of affairs because we’ve been used, for the best part of a hundred years, to the steady mortality decline. And for this group, this very important middle-aged group, this mortality rate has really turned around.
And when we first found it and we said, well, what’s causing it, you know, we went through the things. Was it a decline in heart attack—you know, was the war on cancer losing? Was the war on heart attacks losing? No, these were all doing just fine. I mean, is it murders? It is traffic accidents? No, it’s not those things. So what is it? It’s largely poisonings. And we thought, my God, what has happened? You know, are people mistaking Drano for milk or something, you know? What—and of course—(laughs)—poisonings is what the CDC classifies as drug overdoses. And you don’t want to think about this. A lot of it is heroin overdoses, which is what, you know, we’re used to, but a lot of it is opioid overdoses. These are legal painkillers that are being subscribed in incredible numbers.
The U.S. is consuming about 95 percent of all the world’s supplies of opioid painkillers, and enough opioid painkillers are prescribed in the United States every year for every adult in the United States to be on opioids for one month a year. I mean, there’s just an incredible outpouring of this stuff, and it’s killing people.
FALK: Now, you said you also stumbled onto this. Can you explain that?
DEATON: Well, we were working on suicide, and we wanted to put suicide in the context of overall mortality. And then we saw for this group that overall mortality—so it was not just suicides, it was those poisonings as well.
But you asked me why this—what has this got to do with globalization, and I’m like, you know. So I’ve always taken—like most people who work on global poverty, I spend a lot of my life—and the Nobel Committee was kind enough to cite it—thinking about how to measure global poverty and global inequality. And I’ve always taken the position which is—you know, I’ve done a lot of work over the years for the World Bank, and I think this is a pretty accepted, in those organizations, cosmopolitan position—globalization has dragged or pulled or liberated hundreds of millions of people from poverty, in India and China in particular. And those people were really poor to start with. So this is just like an incredibly major achievement in the world.
So when you think the world is going to hell in a handbasket, which it sort of is right now, you have to look back on those amazing achievements. And a lot of those have come from opening up markets, you know, from greater international trade, from all the things we know about. And the sort of cosmopolitan position is, OK, maybe some people in the U.S. and Western Europe were hurt by this process, but you know, they’re really well-off compared with the people in China and India who are being helped. So if you take this sort of positon, that we prefer to help people who are poorer than people who are richer, then this seemed like a pretty good thing.
And so, however, when you see these middle-aged people—and these are the people in the U.S. who are bearing the brunt of this—these are the people who used to have good factor jobs with on-the-job training. These are the people who could build good lives for themselves and for their kids. And all of that has gone away. The factory’s in Cambodia, the factory’s in Vietnam, the factory’s in China, wherever. And, you know, there’s been a lot of dispute between the right and left as to how badly off them are. You know, are the price indices correct, are median wages really falling, and so on. But when you actually see them killing themselves, you know, and the mortality rates are going up, then you think something really, really seriously has gone wrong. One of my colleagues—an anthropologist, Carolyn Rouse—has used the term these people have lost the narrative of their lives.
Now, Pamela asked me the question, you know, why? We don’t know why is the answer. And, of course, everybody has their theory, and that’s where—but, I mean, it’s hard to believe it’s not connected up with those 20 or 30 years of declining economic prospects for people with only a high school education in the United States. And, you know, somehow we’ve got to find a way—I’m not against globalization. I’m certainly not going to go for protectionist solutions or something. But we’ve got to find a way of sharing the benefits with those people, too—and if not with them, at least with their kids.
There’s a new book by Kathy Edin which also gave me pause. They’ve documented there are a large number of people in the United States living on less than $2 a day, and that’s the World Bank’s global standard for global poverty. So some of these people who have been left behind are as poor as the poorest people in India and China, and we’ve really got to think much harder about this than we have.
FALK: All right. I want to come back to some of those questions, but I want to move on—and then we’ll come back—to effective altruism. And that’s also a topic you have been widely reported about, your views, Professor Deaton, and that’s you have questioned how billionaire philanthropists can reliably help the world’s poor, whether they can use—and in your—in your analysis, can they use randomized controlled trials in developing countries to find out what works? And so you’ve drawn criticism from some of the famous billionaires, including Bill Gates, even though he did write a jacket comment on the book, and his point was you come away with—confused about what aid does for people. Now, effective altruism talks about how billionaires, if they can give money, how does that work, and will it actually help. And you’ve been somewhat critical of that. So—not that I’m saying billionaires listening around the world and in this audience—how do you help—(chuckles)—is the bottom line.
DEATON: It’s complicated. I think one of the things that billionaire philanthropists are discovering is it’s actually very hard to give money away in an effective way—in a way that you really believe is improving the world. And actually, that it’s hard is the right answer, right? And the worst thing, I think, about the effective altruism movement is it pretends it’s not hard. It says we have a magic solution which will really help you do this. And the trouble with magic is, it only exists in Harry Potter novels. You really can’t use magic to make the poor of the world less poor.
So I could tell you a little bit about what the magic is, and my colleague and friend, Peter Singer, is one of the big advocates for this. And he’s always taken this view, which I agree with, that, you know, we owe a lot to the poor of the world. The fact that they live a long way away is sort of irrelevant. We still owe something to help them.
FALK: Are—oh, I’m sorry.
DEATON: Yeah. But he says, OK, but he doesn’t really believe in the World Bank or he doesn’t really believe in foreign aid, and many people—you know, as officially constituted. So they’re trying to find better ways of doing this, and they think they found a solution in this new movement to do randomized trials—randomized controlled trials, like in medicine, all over in Africa and Asia and Latin America, to sort of find out which interventions work. And I don’t think it makes any sense to think about which interventions work.
I mean, just to take one example, there’s a famous randomized controlled trial by a couple of economists that was done in Kenya which showed that de-worming children would improve their school performance. They had better test scores. And the idea is that, you know, if they’re healthier, they’re more likely to come to school, and they don’t miss the class in which you learn how to take logarithms or do the multiplication table or whatever. It sounds terrific. But one of my coauthors I worked with on this lives in Oxford in England. She’s a philosopher, and she has a granddaughter she lives with, and her granddaughter’s not doing very well in school. So she said, hey, I know what I should do—(chuckles)—I should give her de-worming pills—(laughter)—that’s what’s wrong.
No, I mean, that’s a joke. But if you draw a line from Kenya, where it supposedly works—though there’s actually been a lot of really good work recently suggesting it doesn’t work at all, even there—to Oxford, you know, somewhere along the line those pills stop working. And that’s the hard problem: you know, do we know where they work? What are the circumstances under which they work? And so this what works slogan is terribly misleading because it’s giving people the idea that there’s a single thing that works, you know, and it works everywhere. And that’s what’s wrong.
And, you know, evidence accumulation is really hard. It requires serious scientific effort. We’ve got to connect up all the things we know. There is no magic bullet. And so the effective altruism, which is—you know, there are sites like GiveWell and others that are listing, if you’re a philanthropist, you know, here’s where you should give your money, and they’re all things like that. They’re things that have been shown to work in one place, often under disputatious circumstances. But, you know, the idea somehow that if you did a randomized control trial and it’s true in one place it must automatically be true somewhere else is nonsense, and I think they’ve just walked into that trap.
FALK: I keep trying to get so much out of you in the time we have. But I—
DEATON: I’m trying to talk—(inaudible).
FALK: (Chuckles.) Since your point is not don’t give the money, but know where you’re giving it, I want to turn one second to the next generation. And you said at one point in the new Millennials and hedge funds that you’re worried about high-paying jobs in finance and other fields; we’re diverting talented young people to more worthwhile pursuits. And there are some masters of the universe here and around the world, and you happen to have one in the family. And you have some experience with what they can do for the rest of the world. So could you explain?
DEATON: Yeah, we both have children in the hedge-fund industry, so, you know—
FALK: Well, that’s true. (Laughs.)
DEATON: —it’s a good thing to think about the good things and the bad things associated with this sort of activity.
So the point I just made in the book is—and this doesn’t just apply to hedge funds; it applies to many of these sort of banking activities—that I think banking is incredibly important. I think generating liquidity, financing, entrepreneurship, and all the rest of it is incredibly important. You know, I’m not one of these people that wants to shut down Wall Street or shut down the banking industry. But it’s hard to find social value in some of the activities that are going on in Wall Street. So, you know, employing people who build, you know—a computer is not fast enough anymore, so you have to build a dedicated chip that sits on the fence around the stock exchange that’s being set up and is even faster than your neighbor’s guy, and you can make a lot of money that way, it’s hard for most of us—most economists, at least—to think there’s a large amount of social value in that. But there’s a lot of private value.
Now, if you get that situation, then a lot of the world’s smartest kids are going to finish up building those boxes that sit around the stock exchange. And, you know, maybe they should be doing something better with their time, especially if they’re the most talented kids that we have—I mean, that are the superstars out of Harvard and Princeton and so on, and they’re finding it more fun to go work in a hedge fund than to go, you know, build an iPhone or solve cancer or, you know, do something about world poverty.
FALK: But then you did have a postscript about the solving cancer.
DEATON: Yeah, I had a story here which—(laughs)—Pamela really liked and I could tell you.
So, when the book came out, my son said come to D.E. Shaw, where he works—(laughter)—and talk to these people, and tell them some of the things you said. So, you know, we had a really—and it was terrific. And—some of the smartest people I’ve ever met there. You know, I meet a lot of smart people. I give a talk at Princeton and there are people coming at me and we have lots of interchange. At D.E. Shaw it was even better. These guys were fabulously smart. So we had a really, really good discussion. And I told the story about, you know, maybe you shouldn’t be here, you should be out there curing cancer. And so—and it was interesting, though, that the to and fro was much more pronounced on one side of the room than it was on the other side of the room. And so, when Adam—my son—and I had dinner afterwards, I said to him, you know, I get the sense there were two audiences there. And he said, oh, that’s the other half of the company. And I said, what do you mean the other half of the company? You know, you have two companies there? And he said, yeah, those are the guys who are curing cancer. And David Shaw has invested enormous amounts of money in having a bunch of guys in the company who are building computer models of the way that cancer cells grow. David Shaw was elected to the National Academy of Sciences a couple of years ago, not for becoming a bazillionaire but for his work on curing cancer.
So I think that’s a lovely story. I don’t know what you think of it. It does tend to take you back to sort of the medieval times and so on, when you had these—you know, the Medicis who were responsible for so much of the art in Florence and so on. And, you know, I’m sure there’s a role for that. You know, this is a role that philanthropy can play.
And so again, you know, I don’t want to think—it’s effective altruism movement I don’t like. I love philanthropy. (Chuckles.) I mean, it’s terrific. And, you know, that might be a story which suggests there’s some—(inaudible). I still don’t think it’s a great idea for the smartest people in the world to be building super-fast boxes around the stock exchange.
FALK: All right. We’re ready to turn to the audience questions on what has been dubbed—I assume you know this—“Deatonomics”—
DEATON: Really? I hadn’t heard. (Laughs.)
FALK: —(laughs)—and the bigger questions of inequality, as you wish to ask, now. Wait for the microphone and speak directly into it. And I may know you, but please state your name and affiliation. And limit yourself to one question just so we get as much in as possible. Please.
Q: Thank you. Thank you, Professor Deaton. Juan Ocampo with Trajectory Asset Management.
Have you been able to look at any cohorts outside of the United States like, you know, the ones who have lost the narrative for life—Canada, Germany, Britain? And looking at them, have they behaved differently? And does that imply anything in terms of what we should be doing here?
DEATON: That’s—I mean, that’s a research program that’s ongoing. But the gross fact is that you don’t see it anywhere else. So if you track through the ’80s and ’90s for the 45- to 55-year cohort, the mortality rates in the United States are going down in parallel with France, Germany, Switzerland, Australia, everywhere, and Canada, and they go down like that. And then around 1997 the American one goes the other way, and all the others go on exactly the way they’re going.
So we don’t yet—what we don’t have is we have not disaggregated those by education. And there’s no very straightforward way of doing that. I mean, in the U.S. it’s hard because you have to get 26 million death certificates and go through them one by one, essentially. And it’s going to take us a while to be able to do that elsewhere.
But, I mean, people have argued that it’s because the social safety net is so much stronger in Europe. But that’s only one hypothesis. And it could be that Europeans are much more socially solid—you know, they’ve not lost the narrative of their lives or whatever. But anyway, but it’s not happening.
FALK: Maybe they go home earlier at night.
DEATON: Or they don’t come to early-morning breakfast. (Laughter.)
FALK: (Laughs.) I’ll come back. Yeah. Yes.
Q: Esther Dyson from the Way to Wellville.
On the second half of that question, I’ve looked at the numbers and read what I could, but I could never find—did they disaggregate even between men and women, among the less educated? And what were those numbers? What was the—
DEATON: They’re not that different—
DEATON: —between men and women.
DEATON: And it’s very interesting, because the press thinks it has to be met. (Laughs.) So you actually get very good articles like New York Times, which say it’s men and women, and the headline says middle-aged men killing themselves. (Laughs.) So the headline writers just want to buy this idea that women are doing this too. But it’s spreading in places.
I mean, there are people—the police in the Northeast are bringing Narcan so that people who are found dying on park benches, one of which is in my hometown, Princeton, New Jersey, you know, could be given this drug and have some reasonable chance of breaking down. And as I’m sure you’ve noticed, every politician in every political party in the election is talking about this, though they misquote us at enormous length. I mean, Hillary likes to say that middle-aged people now have a life expectancy lower than their parents, which is complete nonsense. This is about mortality rates, not life expectancy.
FALK: Any other candidates misquoting you?
DEATON: Well, Bernie talks about life expectancy, but he doesn’t do this thing about parents and children. But even Joe Stiglitz got the life expectancy thing wrong. So, you know—
FALK: (Laughter.) All right. So at least we’re clarifying it.
Q: Hi, Professor Deaton. My name is Nili Gilbert. I’m a co-founder and portfolio manager at Matarin Capital. So I’m going to have to talk to you after the break about a vision for how hedge funds can be a positive catalyst of social value.
Q: My question for you is really about the aspect of your work that focuses on individual choice and particular survey—and particular survey work that then challenges a lot of the assumptions about aggregates—aggregate demand, for example—
Q: —that are widely held in classical economics. And I find it particularly interesting that another recent Nobel Prize winner, Daniel Kahneman, his work about individual choice also challenged basic assumptions about homo economicus as a rational decision-maker.
I wonder whether you see a broad trend in which our understanding of the individual, of individual choice, of greater acceptance of survey work in traditional economics, may ultimately present a broad challenge to the basic assumptions that we’ve all been taught in classical economics and what that may mean for the discipline going forward.
DEATON: Right. Great question. It makes me very happy, because the answer to all of these things, I think, is yes. (Laughter.) And when I leave here, I’m having lunch with Danny Kahneman. So we argue all the time, because we both think economics should be taken apart, but in somewhat different ways.
I mean, Danny, in spite of having a Nobel Prize in economics, hates economists and hates economics. And, you know, I’m sort of an exception. I like to have lunch with him from time to time. But I’d love to talk about the aggregate thing, because I think this is something that’s made me very happy in recent years, that it’s—I mean, there’s two views on whether the underlying homo economicus assumptions need to be changed. And I think they do need to be changed. But a lot of what we used to believe must be true too. So that synthesis is something that’s going to be a task for professional economists over the next 20, 25 years.
I think the disaggregates, though, that is something that was cited all over the Nobel Prize. And it clearly is changing. So when I talk to my macroeconomic colleagues at Princeton, the people who study the macroeconomy and all the stuff that you guys probably are most interested in, they’re working with micro data too. They’re working with individual data, because they really believe that what happens to individuals matters to the macroeconomy.
And so, you know, inequality and poverty are just not visible in the aggregate statistics. GDP can’t tell you anything about inequality. It can’t tell you anything about poverty. I mean, you know, if you take out the top 1 percent, France is growing faster than the United States, for example. And, you know, so those sort of statements, we’ve got to get down to there. And that’s where they’re going. And I think modern macroeconomics, maybe outside of a few central banks, has fully adopted that. And that’s very much the intellectual frontier. So your sense is exactly right. And I think we’re going to build inequality distribution into the macroeconomy.
And, of course, one of the big forces for that is just the availability of data. You know, it used to be, when I started out, you just couldn’t get the micro data. You know, the government collected surveys, but they weren’t published. You couldn’t get the data. And so that’s been a battle that’s been won, and now there’s more data than any of them can handle.
FALK: Well, on that front, one example was—that I found particularly interesting was in India that malnutrition and poverty went in an opposite direction from what people generally thought. But let me go—let me not take any questions away. Yes. And then I’ll come over here right after.
Q: Afsaneh Beschloss, the Rock Creek Group.
Professor Deaton, you have written a lot also about the role of multilaterals and what should happen to their funding. What you are talking about, I think, makes a lot of sense on the government help that the bank and other institutions have been doing. But if we look at China and India, they also benefited hugely because the multilaterals gave them loans, but attached to that there was a lot of technical assistance. And they were like a sponge. They really used the best of the best of that.
Q: But those went hand in hand because the bank doesn’t have the funding model and other multilaterals don’t have a funding model to just provide TA.
So, sort of looking forward—since it seems like part of aid worked pretty well, the other part didn’t work well—the other side of it is that if we look at the emerging markets right now, health sector and education are probably the highest-returning assets in those countries even today if you look over the last 10 years, as rewarded by the markets.
Where do you see sort of that differentiation between providing the public social goods versus other—you know, infrastructure and other sort of hard sector in terms of the role of multilaterals in the future?
DEATON: Yeah, I think it’s always something that has been—the bank has, I think, rightly been criticized for. The technical assistance was always tied to the lending program. And so as the middle-income lenders—the middle-income borrowers have sort of fallen away from the bank because it’s much easier for them to get funds elsewhere, they’re deprived of that technical assistance.
And for any of us who know the bank well, you know, there is a lot of technical expertise in there. It tends to get contaminated by politics from time to time. So whatever is the fashion in Washington becomes—you know, gets into the technical assistance too. But nevertheless, I would love to see the bank become a primarily technical-assistance organization in lots of ways. I don’t see why it should compete with other private-sector actors in that thing as a source, but, you know, as a generously well-funded global source of technical assistance that’s available to all countries around the world. So I’d really—I’d really like to see that.
I think there’s a lot of expertise on the health and education front too. But as you say, I mean, a lot of it is being handled by the private sector. I’m not sure the bank—I’m very—well, I don’t want to go there maybe. There’s a lot of technical expertise in health that really isn’t technical expertise. I mean, it’s clear that they’re very, very good at dealing with emergencies like Zika or Ebola, in spite of, you know, maybe it was not as well done. But that’s really hard stuff.
And, you know, there are traditional public health measures that work in that sort of system. And the WHO and other people know how to do that. But there’s a lot of other steps that seems to me—you know, there’s a huge campaign these days to push non-communicable disease agenda out into the world. And, you know, it’s true that a lot of people in India are dying of diabetes and so on, but that’s because India is a very large—there are a lot of people in India. And I really worry that the malnutrition agenda which Pamela talked about, which I think is still incredibly important in India, is going to get derailed.
You know, we have a habit of pushing First World health agendas onto poor countries around the world. And I don’t—I think that’s a habit we should break ourselves of.
FALK: And to clarify, the malnutrition leading to poverty versus poverty leading to malnutrition, just because it’s a great point.
DEATON: Well, it’s just that one of the things one of my coauthors and I—I worked with this very interesting guy. He’s one of the best economists I know, who’s a much-hated activist in India. He wanders around getting beaten up by the police and generally agitating and causing trouble. And he’s had enormous effects in India, and he works on right-to-food campaigns, essentially. His name is Jean Dreze.
And what we found was that, in spite of all the economic growth in India, which has historically very, very high rates of growth—and it’s not just going to the rich; I mean, you can see growth among poor people in India, too—their per capita calorie consumption is going down and has been going down for 20 years, even in a country where about half of all kids are severely malnourished. I mean, they’re at the sort of level where, if you took them to your pediatrician here, he would go, “aah”—you know, we’re taking that kid away from you and we’re going to put it on a proper feeding program.
And why that’s happening is sort of one of the great mysteries. And, you know, we’re still trying to figure that out. But it’s one of the big puzzles in development economics right now as to why that’s happening. Malnutrition is getting better, though, so that these kids are getting taller and a little less skinny. And so there’s—this is, I think, the point that Pamela’s pushing, which is, you know, there’s not a one-for-one link between eating food and health either.
FALK: Right. The statistics—your micro-analysis is often that the statistics aren’t what they appear to be—
DEATON: That’s right.
FALK: —and that you have to get them from the source. All right.
FALK: Here, another one. And then there’s one back here.
Q: I can sit down, right?
FALK: Yes, you may.
Q: OK. Thanks, Pam.
My name is Evelyn Leopold. I’m also a resident correspondent at the United Nations. And I’ve lived in Africa, and I’d like to return to that. I’ve lived in Kenya when I was Reuters editor for Africa, which is a favorite group for—a favorite place for aid groups, because it’s—it functions a bit better than other countries and it’s good for R&R.
But I’d like to turn to Burundi. And if you’ve looked at that recently, most of the functioning institutions depend on foreign aid, and mainly from Europe, France and other countries. And now that there’s a huge conflict, this has diminished and in many areas stopped, and it’s made the conflict even worse. I wonder if you’ve looked at that.
DEATON: I haven’t looked at Burundi, but you see, I would put almost the opposite interpretation on what you’re talking about, that—I mean, these institutions have been allowed to fester because there’s so much foreign aid. Kagame, next door in Rwanda, would be—may be an even more extreme example. I mean, he’s been the darling of the foreign-aid industry. And, you know, he’s been very successful. Or at least, under his watch, infant mortality rates and so on have come down. The aid agencies love him, and they pour money in there. And he uses it to persecute his enemies and establish a dictatorship.
And, you know, this has happened over and over again in Africa. And those people don’t have to do—I mean, they can seek third terms or fourth terms or life terms as presidency. And, you know, they’re consolidating their power on the back of Western aid. And they’re very—and Kenya is another very good example. I mean, you know, the masters of Kenya have been the masters of playing games against the foreign-aid agencies. And, you know, the foreign-aid agencies say why hasn’t Parliament met in years? And they say, well, we don’t need Parliament because we’re getting all our money from you guys. And so you guys say, OK, we’re shutting down our aid. So they shut down the aid. And, you know, people panic for a little while and they open the Parliament again, maybe a couple of meetings, and then all the aid guys say, great; they’ve reformed. Right? So they turn the aid back on again. They pull up the shutters in the Parliament and they give all the members of Parliament a Mercedes, and everyone goes home happy.
So, you know, these people know that the aid agencies need to give them money even more than they need to give money, because they can play different countries off against one another, and so on. So I think this is just—you know, you’re seeing the underbelly of what’s really going on here.
FALK: That one’s one to ponder.
Yes. There are two questions back here. All the way in the back and then over here. Yeah. I see the hand. And then you’re next. And then we’ll come over here. Thank you.
Q: Professor Deaton, my name is Bhakti Mirchandani. I work at One William Street. Thank you for your comments.
Returning to the earlier part of the Q&A session, you mentioned that the U.S. needs to find a way to share the benefits of globalization, if not with middle-aged high school-educated white individuals, at least with their children.
Q: From your perspective, what does that look like? And how can it be most effectively done?
DEATON: I wish I knew more about that. But, you know, education is one of the things that I’ve never really worked on. And so I certainly don’t want to go on the record about recommendations for U.S. education policy.
There’s a terrific relatively new book, just last year, by Bob Putnam called “Our Kids.” And he’s making the argument that, you knew, he grew up in—I think it’s called Port Clinton, Ohio, which is a relatively poor place, and he was not particularly well heeled himself. But he’s tracked what happened to him and what happened to the other cohorts he grew up with. And they all had the opportunity, rather like I had the opportunity, to percolate up through the educational system and become a professor at Harvard or become a professor at Princeton.
He thinks those opportunities do not exist anymore. And the trouble is, to know that for sure, we’re going to have to wait 25 years until we get the data on the adult education, the earnings of those people who are their kids now. And he’s rightly impatient with that and has written this book looking at just how hard it is for these parents who are not doing very well.
And, you know, I would guess that part of what Anne and I are seeing in our data is, you know, one of the things that would really make you despair in middle age is not only if you were not going to be better off than your parents, but if you thought your kids were going to be even worse off than you were going to be and if the kids are turning to drugs and all of that too. I think that would make me despair.
And so this story—I mean, I think these two books—the other one I mentioned is Kathy Edin’s book on living in America on $2 a day. You know, those are very, very depressing books. And you’re really talking about under—first of all, there’s poverty by global standards in the U.S., and secondly, that the inequality of opportunity—equality of opportunity, which has been the great standard in the U.S. and the thing which right and left, you know, coalesced around, that we really want to give equality of opportunity to our kids, seems to be under threat too.
And so, you know, we’ve really got to find some way of sharing. And, you know, the thing that makes this harder and harder is this falling rate of economic growth over time, because, you know, if you’ve got a healthy rate of economic growth, everybody can get something. But if we’ve got a growth that’s closer to zero, the only way I can get something is if I take it away from you. And that certainly has got a lot to do with the polarization and bitterness in American politics today.
FALK: All right, Wade, hold on one second. You’ve been very patient over here. And then I’m coming back.
DEATON: I’ll try to be shorter in my answers. I know we’re running out of time.
Q: Margaret Cannella with Columbia Business School.
In terms of looking at effective poverty alleviation, what do you think about micro-finance and micro-finance efforts?
DEATON: Again, I’m not an expert on that, so let me preface. The people who spend a lot of time studying it are coming away with that with pretty negative beliefs now. I mean, there’s a lot of people who deeply believe in it almost as this sort of religious faith. But there seems to be not very good evidence. I’m not a great believer in RCT, in randomized control trials, but the stuff on that has not been very positive.
I think what tends to happen is a few people do incredibly well. And most of the other people just don’t really benefit from the money. Now, how you think about that, you’re creating inequality. On the other hand, you could say you’re creating opportunity. It’s the way opportunity is. But I’m—from what I’ve seen, I have not been super-impressed that that’s been a major solution.
FALK: We’re about to go here. I have one quick follow-up, though, I have to ask. Since you’re talking about inequality—and it’s sort of an imponderable, so you can move it into another question—but the inequality, does that mean in economics? Inequality in political systems, we understand. And your point is it can make inequality in a political system. But is equality the goal? In other words, if Bill Gates reduces his salary to mine, will that make anyone happier? And does the—do the poor—do the rich have to lose for the poor to win? So part of the question is where does the equality come from? Is it not just disparate income or poverty and inequality on the political front?
DEATON: Yeah. I mean, what you’ve raised is there are a million different definitions of inequality and equality. And economists tend to use it in the fairly narrow sense of the spread of the distribution of income.
FALK: Right. OK.
DEATON: But there’s a lot of other equalities, like political equality, which don’t really work that way.
I actually—I think you and I are on the same side, which is I don’t think equality is intrinsically valuable, meaning in and of itself. I’m not against inequality. (Inaudible.) You know, if Bill Gates gets another hundred million dollars, it’s no skin off my nose. But it is if he uses it to undermine something I care about. But that’s an instrumental view of inequality, and I think the more convincing arguments against inequality are the dangers it brings to our political system.
FALK: That was so concise, it was unbelievable. Thank you.
Yes, right here in the middle. Yes.
Q: There are two.
FALK: Oh, OK. And then you can, right afterward. The two male questions for the first—
Q: (Off mic.)
FALK: OK. Go ahead.
DEATON: Speak for yourself. (Laughter.)
Q: Professor, I’m curious, in terms of effective philanthropy in particular, what role you see—
FALK: I’m sorry. Can you—
Q: Oh, I’m sorry. I’m Larry Coben with the Sustainable Preservation Initiative, and I’m curious what role you see for other social sciences with respect to effective philanthropy, collaborating with economics. To some degree, when you describe the path from Kenya to Oxford, that’s an anthropological and a sociological question. And I don’t see a lot of interaction between the fields, at least not in my university and some others, where economists, anthropologists and sociologists gather to address some of these kinds of problems from a multidisciplinary perspective.
DEATON: Well, that’s interesting. Maybe I’m just lucky at Princeton, because I do see that. And I think it’s relatively new, but one of the things—actually, in my closing speech in Stockholm, that was—and I only (got two minutes ?)—one of the things I said that pleased me most that, at this point in my career, was just seeing the convergence of areas that, through most of my working life, have been very disparate.
So, for instance, I spend a lot of time talking to philosophers at Princeton. And also there’s been—philosophers have gotten much more interested in practical stuff. Of course, you know, that can be a problem, because they don’t have any idea about how the world works, right? (Laughter.) And—but that’s the effect of altruism debate in some sense. You know, the philosophers are reminding us that we have a duty, a moral duty, to deal with this stuff. And, you know, we say, OK, but it’s not as simple as you think it is. And so I think that’s a good example.
But I talk to political scientists. Some of my best friends are sociologists. The two books I just recommended—Bob Putnam is a political scientist and sociologist, and Kathy Edin is an ethnographer. And so I just think—I mean, I’m sorry if you live in a benighted neck of the West, but—(laughs)—I think this is really happening, and I think it’s terrific. And, you know, I had the great privilege to have Danny Kahneman in the office next to me. And, you know, that changed my life in lots of ways. We’re still arguing about that.
FALK: All right, and—
Q: Hi, Professor Deaton. I’m Zachary Karabell, Envestnet.
So, first of all, I love “The Great Escape.” You know, I’m a total fan boy of the book. But I recently had a piece in this issue of Foreign Affairs about stagnation and looking at it maybe in a less dire form. And so I want to kind of question you about that and your comment just now about it’s harder when there’s no growth because it’s zero sum.
Growth in income look at one part of a human equation, right? They’re simply—they’re means to purchase health care and material goods and security and safety. But they’re only one potential means. So the question is, if—why aren’t we looking more at the means side and not just the income ledger? I mean, if everything is getting less expensive and everything is getting more obtainable, then it really shouldn’t matter whether or not there’s growth, because every dollar is going to purchase more of what it was designed to.
Why has that not been looked at more within economics? And why is Japan held up as, you know, the fearsome example of what we might be headed to when—what exactly is wrong with Japan as a society? So I’d like you to push that a little further as to—
DEATON: Well, I mean, I think that—let me give the—just take the easy bit off the table first. I mean, when we look at income, we’re looking at real income. So we’re correcting for purchasing power. Now, we may not do that very well, which is the deeper part of that. And Bob Gordon, before he changed sides, used to argue that we were not measuring that at all, so there’s much more growth out there than we think there is, which I think is sort of what you’re saying, that, you know, the GDP accounts are just not taking account of a lot of the extra pleasure we get from our money. And I believe that. I just don’t know how big it is.
So, for instance, you know, Bob Gordon in his new guise about, you know, the world is—productivity growth has gone away and we’re never going to be as well off again, sort of tested this—takes things like iPhones and dismisses them as toys. But, you know, my iPhone gives me access to the world’s great literature instantaneously; gives me access to the world’s great music. Even more importantly, it gives me instantaneous access to my kids and my grandchildren. I can talk to my grandchildren. I mean, to me those are just enormous pleasures, and those pleasures are not captured in the national accounts at all. So that’s part of your point.
I don’t know how to do that. No one knows how to do that. And also there’s a worry that it’s not equally distributed, that, you know, a lot of people who are getting those benefits are not like other people who we’re talking about at the bottom end.
I’m not sure about health care. We spend an enormous amount of money on health care, and most of it, I think, doesn’t do any good; or maybe not most of it, but maybe half of it. On the other hand, a lot of it does enormous amounts of good. I’m sitting here with this cane because I had a hip replaced. And, you know, if you doubt the benefits of modern medical care, have a hip replaced. Actually, I am still dining in. But in a week or two I’ll be fully recovered, and I won’t doubt it anymore. So it’s clear.
But that’s in there in some sense. It just may be that we’re not really capturing it. And I do think it’s probably true that our statistical services were designed for worlds of steel and widgets, and they’re not well designed for worlds of Internet and services, things like that. But, I mean, I think—I don’t know enough about Japan to say that it’s terrible. But, you know, if you look at what’s happening in the U.S. and what’s happening in Europe, which has been pretty bad, you know, we have only had this very anemic recovery from the great recession. Europe hasn’t had recovery at all. I mean, it had a little recovery, and then it stamped it out again. And if you look at most of the statistics I look at, including self-reported wealthy, that they don’t look very good in Europe. So I don’t think it’s true.
You know, I’m much more optimistic when I look backwards. You know, the world is way better than it was 200 years ago. And I think the pressure from human ingenuity to live a better life, which was kindled in the Enlightenment, is still there and will triumph in the end. But I’m not sure that we’re doing so well right now.
FALK: Well, on that note there are so many more questions, and we clearly could go on for hours, as well as I could. But I invite members in New York to come up and speak with Professor Deaton after the meeting. I would like to say that Professor Deaton said in one of the many articles that he hopes his legacy is carefulness in measurement. And that seems to be clearly the case.
So congratulations on your award. Thank you so much for edifying us.
DEATON: Thank you.
FALK: Thank you for the C. Peter McColough Program. (Applause.)
DEATON: Thank you. Thank you very much. Thank you.
FALK: Thank you.
FALK: And to Richard Haass for presenting the program. Thank you all for coming.
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