The Nobel for Poverty

Angus Deaton, a professor at Princeton University, has been awarded
the 2015 Nobel Prize in economics, for his econometric work in three
fields: the estimation of demand systems, the use of microeconomic
data is estimating aggregate consumption, especially his innovation of
‘pseudo panels’ based on cross section data, and his use of household
consumption survey data in estimating poverty.

The emphasis on empirical work is both welcome and long overdue.

The Nobel citation
details these contributions in context. It is interesting to note the
for the first two, the focus is on demand and consumption, and the
context the UK and other advanced economies. Here, his empirical
concerns led Deaton to add substance to theory, and in the process to
help refine the theories of demand and aggregate consumption.

The third contribution specifically refers to his work in development
economics—or ‘the economics for poor countries’, not taken as a
serious discipline in the West. Here, Deaton, working closely with the
World Bank, used household consumption data for the estimation of
poverty. In this area, a large part of the work dealt with India.

In India, Deaton found a goldmine of household consumption data from
the surveys pioneered by the Indian Statistical Institute. This was
later spun off as the National Sample Survey and is now part of the
Central Statistical Organisation. He has been closely associated with
many Indian economists in this process. [See the news item in DNA..].
For a more academic review see T Krishna Kumar’s P.V. Sukhatme
which cites, not just Deaton, but much more related work in India].

His paper with S Subramanian on income and nutrition in Maharashtra is
well cited. [].
Another important paper is with Jean Dreze which examined claims that
the 1990s saw wide spread and broad declines in poverty.
The article, which did see some improvements take place, found no
evidence to substantiate that claim.

The Nobel Committee recognising such work is a step forward from its
earlier awards for work on financial markets, to economists whose
firms collapsed shortly after the award. But it is also noticeable
that while poverty and related issues—nutrition for example—are
studied, inequality gets only peripheral, if any, mention. Poverty
deals in detail with one end of a skewed income and wealth
distribution. In studying poverty thus, the stance is simple. As
civilised societies and people, we must do something to reduce poverty
[misery]. This is laudable…and important.

However, poverty is one tail in the income/wealth distribution.
Inequality looks at the entire distribution, and asks about the links
between the two. What are the shares of, say the top 10, 1 or 0.1%
percent of the population in national income and wealth? What is the
share of the bottom, say 20%. Is the gap between the two increasing or
decreasing, and why. In India the bottom 20% get only 8.2%
[]. After Bannerji
and Piketty []
found increasing inequality in India from 1980 to about 2000, the
Indian income tax department stopped publishing that data series. So
it becomes a challenge to answer this question.

Until something is done to increase this share of the bottom 20%–or
whatever percentage we choose as a society, poverty cannot be
eliminated. [I wonder if this is the reason for policies, not of
poverty elimination—which is what ‘garibi hatao’ translates to—but of
‘poverty alleviation’, which accepts that poverty will remain with us
for ever. Is it a Goebblesian way of not pronouncing the truth: ‘amiri

An economist working on issues of inequality for a long time, with a
focus on the UK is Anthony B Atkinson.
[]. It is
reported that his name too was under consideration of the Nobel
committee. An award to Atkinson would have turned the world’s focus to
inequality, rather than just poverty. While Thomas Piketty can be
eliminated for being too young, it is hard to understand Atkinson’s
exclusion without the nagging doubt that the focus was not to be on

But if poverty was to be the sole focus, it would have been quite
appropriate to recognise the pioneering—and fundamental work at the
Indian Statistical Institute which could have shared the award. Apart
from its work in designing, organising and collecting all the data
that has been used by Deaton and many others, it provided a base on
which Deaton could build. The technical issues he talks about were
addressed by the ISI scholars [too numerous to name here

Finally, recall for example the discussion on the ‘recall period’ in
survey research: how long should it be? The ISI settled for a month
[uniform reference period—URP]. Today there is a debate about whether
this is right, or if not, what it should be. A modified reference
period was tested out in 1999, and it led to both confusion and
debate. This has now been revived in a new World Bank publication with
a modified mixed reference period—MMRP—according to which India may
have overestimated its poor by almost 10% [].
Clearly, the implications are enormous.

This brings us back to the nature of political economy. The questions
we ask, and how we ask them matters. Asking about poverty is a start.
But inequality beckons, and it has not been addressed by this Nobel

Vinod Vyasulu

 Board Member and Research Mentor, CBPS

[Disclaimer: Views presented above are those of the author and do not necessarily reflect those of CBPS]

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