Hoover Daily Report

Measuring World Poverty As It Shrinks

via The Wall Street Journal
Monday, October 12, 2015
Image credit: 
istock

The Royal Swedish Academy of Sciences has awarded its 2015 Nobel Prize in economics to Scottish-born economist Angus Deaton for his “analysis of consumption, poverty and welfare.” Mr. Deaton, 69, who is both a British and U.S. citizen, is a Princeton University professor of economics and international affairs and an important chronicler of the market’s abilities to create wealth and improve society.

Yet if you check the Nobel Committee’s website entries about the work that earned Mr. Deaton the award, you could easily miss some of his most interesting and important ideas. Yes, he deserves the award for his contributions to index numbers and purchasing-power parity comparisons. But why do these contributions matter? Because they’ve helped him measure world poverty.

Here’s the good news: World poverty is falling, life expectancy is increasing and higher wealth makes you somewhat happier. If you want to understand Mr. Deaton’s thinking, read his 2013 book, “The Great Escape: Health, Wealth, and the Origins of Inequality.” Or, if you are more of a listener, I recommend Russ Roberts’s one-hour Econtalk conversation with Mr. Deaton about the book.

“Life is better now than at almost any time in history,” writes Mr. Deaton in the book’s opening. “More people are richer and fewer people live in dire poverty. Lives are longer and parents no longer routinely watch a quarter of their children die. Yet millions still experience the horrors of destitution and of premature death. The world is hugely unequal.”

What is behind this explosion in wealth and health? In the 19th century, an important factor in economic growth and the decline of poverty was the Industrial Revolution. In the early 20th century, Mr. Deaton notes, cleaning up water supplies, extending vaccinations, and applying germ theory to disease prevention were crucial for improving health. He worries, though, that the very wealthy are having and will have a disproportionate influence on the political system.

One graph in Mr. Deaton’s book, taken and updated from the demographer Samuel Preston, is alone worth 1,000 words; I’ll keep it under 100:

Countries with the highest per capita income have, by and large, the highest life expectancy. The “hinge point” beyond which that relationship flattens is at about $8,000 per capita in 2005 U.S. dollars. Below that income, Mr. Deaton writes, “infectious diseases are important causes of deaths, and many of the deaths are among children, so that in the poorest countries, about half of all deaths are of children under the age of 5.” At higher incomes, deaths of children are fairly rare, and “most deaths are of old people who die not from infectious disease but from chronic diseases.”

The same chart shows another interesting effect—the man-made famine caused by Mao Zedong’s disastrous social engineering and collectivist policies of the late 1950s. In 1958 life expectancy in China was nearly 50; by 1960 Mao had chopped it to less than 30. Five years later, “once Mao had stopped killing people,” it had risen to nearly 55.

Mr. Deaton is a strong critic of foreign aid. He believes that the approximately $5 trillion given by governments of rich countries to poor countries over the past 50 years has undercut good governance by making poor countries’ leaders less accountable to their own citizens.

In short, the Nobel committee made a fine pick.

Mr. Henderson is a research fellow with Stanford University’s Hoover Institution and an economics professor at the Naval Postgraduate School.