Angus Deaton and an unequal world

Dear Reader,

Hi! My article on the implications of Deaton’s work on India appeared in the Hindu Business Line today. You can read it below or may want to read it at  http://www.thehindubusinessline.com/opinion/angus-deaton-and-an-unequal-world/article7757876.ece

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The Economics Nobel winner has blended meticulous data with broad-based field observations to interpret inequality

His book titled The Great Escape: Health, Wealth and the Origins of Inequality grips the reader with vivid examples and similes.

The book starts by talking about the movie, The Great Escape. For those who haven’t seen it, the movie is about a South African from the Royal Air Force who is captured by the Nazis and escapes the prisoners of war camp multiple times only to be recaptured multiple times.

The movie shows how a handful of prisoners build tunnels right under the nose of the Nazis to escape from the camp. All but three are recaptured; a few die. What is it that the enterprising prisoners wanted? They wanted freedom, and were willing to risk their lives for it. Such great escape episodes have happened numerous times in the history of mankind.

The Industrial Revolution or reforms initiation in India could be examples of a concerted effort by a section of the population to move towards a better, more unencumbered life. It is here that Deaton comes out with a mind-boggling issue. He says that even if the movie did not dwell on those who did not manage to escape, it makes sense for a social scientist to do so.

Escape and after

Very often, it is those left behind who suffer the consequences of the great escape in that it is they who bear more physical hardships or reduced freedom after the escape. And herein lies the genesis of inequality. Inequality, says Deaton, is a natural by-product of those who desire growth. Re-escape and recapture: That is the way growth progresses.

But it leaves in its wake numerous and sometimes more severe problems for those who don’t manage to escape. As global growth episodes sharpened, especially after 1985, there were billions who benefited from the process. Just as there were billions who got hurt due to the great escape.

However, it is not only poor income levels that affect the living standards of the underprivileged in the developing economies. There’s also poor nutrition levels and poor health issues.

Whenever great epidemics have made their presence felt, great escapes from the epidemics have also come in the form of new vaccines. Vaccines for malaria and cholera helped everyone across the board, but to begin with, it helped the richer classes access a better life, broadening the gap in living standards.

That smoking causes cancer is a beaten-up statement; yet it is the richer classes that manage to quit smoking more successfully than the poorer classes.

Here’s a beautiful quote from Deaton that is particularly striking in this context: “Necessity may be the mother of invention, but there is nothing that guarantees a successful pregnancy.”

Nutri-puzzles

Deaton has made a number of observations on the Indian economy in various published papers. In a very interesting paper, ‘Food and Nutrition in India: Facts and Interpretation’, published in the Economical and Political Weekly (2008), Angus Deaton and Jean Dreze cite data from 1983 to 2005 to highlight a number of “nutri-puzzles” in India.

The first of these puzzles is that in the period under consideration, there was a rapid increase in per capita income levels, whereas the per capita calorie consumption seems to have fallen.

Secondly, while people have definitely reduced the consumption of cereals, there also seems to be a reduction in the per capita consumption of pulses. So it is not the case that carbohydrates have been substituted by protein.

The third puzzle is that even the relative food prices in the period under consideration have not increased substantially. Fourth, reduction in calorie consumption may not only indicate worsening nutrition status, it may actually be indicating lesser requirement of calories as physical hardships have reduced over time.

To resolve these puzzles, Deaton makes a clear case for harmonising and dovetailing nutrition statistics (currently compiled by the National Nutrition Monitoring Bureau and the National Family Health Survey) with the NSS data so that nutrition and health patterns can be read more clearly.

In another 2008 paper, Deaton has used the consumer price indices for agricultural and rural labourers (CPI-AL) and for industrial workers (CPI-IW) to make a commentary on poverty levels.

Whilst measuring poverty, poverty levels are held constant in real terms and are then multiplied by CPI indices to get the nominal measure. Deaton makes the point that poverty levels in real terms are firstly under-quoted.

Secondly, he shows that the food component of the CPI-AL often understates food inflation. Hence, the nominal poverty level calculation in India manages to understate the level of actual poverty significantly.

His paper calculates that in 2004, the official figures of poverty as calculated by the government were at least 3 per cent short of the actual poverty levels.

Tackling poverty

He has also done incisive work on anti-poverty strategies, some of which is relevant to Indian policy in the current context. In a paper that he writes with Princeton scholar and wife, Anne Case, Deaton argues strongly in favour of cash transfers as an anti-poverty tool. Calling it a “first best transfer scheme”, he highlights how cash prizes enhance consumption choices, reach direct beneficiaries and can be made women-centric.

On the other hand, poverty alleviation programmes that have second-best in-kind transfer schemes very often are problematic since they provide goods, whose shadow value to the beneficiaries is often less than the cost of the same to the provider. These and such arguments have also been rapidly making the rounds in India even as we debate revamping the PDS and moving towards a DBT scheme of food security.

As Thomas Piketty says, it’s an unequal world. Deaton’s genius is to open all the various facets of the inequality through minute data-based evidences as well as broad-based field observations. The Indian government may do well to ponder on the ‘Great Left Behind’ even while it tries its Great Escape.

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