By allowing ads to appear on this site, you support the local businesses who, in turn, support great journalism.
The man who put the poverty line under the microscope wins a Nobel Prize
Angus Deaton was given the Nobel Prize for economics Monday. Deaton discovered that changes in income don't proportionally affect consumer behavior, which brought more nuance to the ways that economists attempt to tackle inequality and poverty. - photo by Daniel Bendtsen
Thirty years ago, conventional wisdom assumed that increasing everyone's income would increase their welfare. Princeton economist Angus Deaton pushed the World Bank in the 1980s to test that hypothesis.

The subsequent research found that caloric intake and nutrition didnt increase as much as expected when income increased. Instead, people would begin replacing their grains and cereals with more expensive meat products.

These discoveries drew from Deaton's most eminent work: his study of consumer behaviors in the 1970s that showed that individuals' spending varied less than their incomes.

But it was the Scottish-born researcher's recent application of those findings to poverty and economic development that moved the Nobel Committee this week to give Deaton its award for economics this year.

His findings indicated to the world that "policymakers may want to shift focus from growth to providing basic needs," the Royal Swedish Academy of Sciences said.

By studying consumer behavior, Deaton also discovered that an increase in a countrys national income can be deceiving in indicating an improvement in the standard of living. Deaton made poverty measurements more sophisticated by examining individuals to see how a change in income level affected a change in well-being.

Millions of people are below the poverty line, NPRs Jim Zarroli said of Deatons microeconomic approach to poverty. But it doesnt really tell you about how they live, what they eat, what they consume, what their health conditions are like. (Deaton) came up with a way to measure these things and its really had a profound impact on economics."

According to Deatons data, consumers are fairly irrational. The amount that people spend on different goods does not change normally when their incomes change.

It has also exemplified how the clever use of household data may shed light on such issues as the relationships between income and calorie intake, and the extent of gender discrimination within the family, said the Royal Swedish Academy of Sciences.

This ultimately led to changes in how organizations worked toward global development.

Deaton has also recently studied the collateral damage that income inequality can have for democratic consensus.

"The very wealthy have little need for state-provided education or health care," he wrote in "The Great Escape" his most recent book. "To worry about these consequences of extreme inequality has nothing to do with being envious of the rich and everything to do with the fear that rapidly growing top incomes are a threat to the wellbeing of everyone else.

Deaton has also argued that strong governments are important for economic development.

"Without government capacity, regulation and enforcement do not work properly, so businesses find it difficult to operate," Deaton wrote in a 2013 MarketWatch column. "The absence of state capacity that is, of the services and protections that people in rich countries take for granted is one of the major causes of poverty and deprivation around the world."

Deaton further criticizes international aid, which he said often "undermines the development of local state capacity."

People in the aid community have criticized Deaton in response, like Charles Kenny of the Center for Global Development, who said that ineffective aid is "a reason for reform, not retrenchment."

"Aid appears to be more effective in promoting economic growth when given to richer countries currently receiving little aid, with stronger institutions and a healthy macroeconomic position," Kenny said. "In other words, aid works best where it is least needed."
Sign up for our E-Newsletters