The Barrister's post today on whether aid organizations know what they are doing struck a chord with me. Last week, the non-Nobel Prize (it's not one of the originals, but was funded by Sweden's Central Bank in memory of Alfred) was given to Angus Deaton.
Deaton is well-liked in the community of Economics because he is generally perceived as not having an ideological ax to grind. In other words, he hasn't spent time justifying one school of thought versus another as many economists, such as Krugman, typically do. Deaton has spent his time analyzing the reasons for, and solutions to, extreme poverty in the world. He was not wedded to a school of thought which supported intervention over markets, or vice versa.
What he found, as a result, is broadly accepted by many different schools of thought, because he plumbed the depths of human behavior, particularly the behavior of the very poor.
In seeking solutions, he did not limit himself to the need for individual endeavor, or simply promote ideas supporting government aid and intervention. What he found is that inequality was a great driver of behaviors to improve individual position, and promote general progress, as long as there were structures in place to protect individual rights.
Most overseas development aid, he argues, is a waste and even destructive use of money, and he worries that even some humanitarian aid ends up doing more harm than good.
Deaton is critic of foreign aid, as that line suggests. His primary thrust, however, is that the world is on the whole wealthier and healthier than it's ever been in history and has the potential to continue getting wealthier and healthier. He points out there is not a nation on earth where infant mortality has risen since 1950. The main reason for this, is income growth which is the result of trade and markets. However, Deaton points out that aid is similar to using an engineering approach to solving a problem. Pumping money into the 'problem' doesn't solve it. The solution requires strong institutions to protect rights and activity.
“Innovators need to be free from the risk of expropriation, functioning law courts are needed to settle disputes and protect patents, and tax rates cannot be too high. When all of these conditions come together— as they have in the United States for a century and a half— we get sustained economic growth and higher living standards.”
Deaton is by no means advocating Laissez-Faire Economics. He recognized strong judicial institutions supporting individual drive and effort are necessary, or gains are easily lost. However, he points to the value of trade and markets and the goodwill they spread over a broad swathe of society. He generally disagrees with Piketty's claim that income inequality is a scourge. However, he did worry about centralization of undue influence in the realm of politics, since wealth can be used to derive political power.
In the United States, in one paper with co-author Darren Lubotsky, he showed that—contrary to deeply held views—income inequality in the U.S. was not linked to higher mortality rates.
By focusing on how the poor behave, rather than on seeking institutional solutions that adhere to a particular economic theme, Deaton has found ways to help the poor, and has created the potential to completely eliminate extreme poverty (as opposed to the relative poverty we often see positioned here in the US by politicians as reasons to provide assistance) within our lifetime.
Deaton has done a great service to the realm of Economics. It is a field which often comes under justifiable criticism. One area of criticism has often been the lack of attention paid to poverty, as opposed to wealth accumulation. Deaton, in focusing on poverty, has shown that the two are inextricably linked. Not because wealth accumulation makes others more poor, but because wealth accumulation spreads goodwill to all, if institutions exist to protect individual rights. But he is critical of the use of intrusive aid and handouts, particularly in environments where individual rights are still lacking.
