FALK: Welcome, welcome. Today I am delighted
to be moderating this conversation with Angus
Deaton at the Council on Foreign Relations
meeting, which is part of the C. Peter McColough
Series on International Economics and presented
by the Maurice Greenberg Center for Geoeconomic
Studies�maybe we can get to that at the
end.
I would like to welcome all of the CFR members
here in New York, as well as those around
the country and around the world who are watching
on livestream. And again, a reminder that
this meeting is on the record.
Now let me tell you a little bit about Angus
Deaton. He is the Dwight Eisenhower Professor
of Economics and International Affairs at
Princeton University�s Woodrow Wilson School,
where he has taught for 30 years. Just a few
months ago, he won the 2015 Economic Science
Prize in Memory of Alfred Nobel for his analysis
of consumption, poverty, and welfare.
Born in Edinburgh, Scotland, the British American
son of a coalminer�you�ll have to tell
that story as well. He is the author of five
books, including most recently �The Great
Escape��which I have dog-eared, every
page of it��Health, Wealth, and the Origins
of Inequality.� His B.A., M.A., and Ph.D.
are from Cambridge University.
Now, I�d like to, in our 30 minutes before
we turn to you for questions, go through basically
four areas�foreign aid, global and national
inequality, the case study of Professors Deaton
and Case on suicides of middle-aged white
Americans, and effective altruism�all in
a whirl of a half an hour.
So let me just start by saying, in �The
Great Escape: (Health, Wealth, and) the Origins
of Inequality,� you make the case that the
world is a better place. We live better. We
live longer. We�re healthier. We�re wealthier.
But you�ve been a critic of some forms of
foreign aid to help those who are not as fortunate,
basically, because money going to governments
can cause more harm than good. You say in
the book that it�s an endless dance between
progress and inequality. And what I found
really important was that the�one of the
examples you use is that China and India have
lifted tens of millions of people out of poverty
despite receiving very little aid, while at
the same time you see poverty entrenched in
many parts of Africa, and they have received
substantial sums. So maybe explain where the
line is. Is there a sweet spot where some
aid should go in? And why is it that aid can
be bad?
DEATON: OK. Thank you very much for inviting
me here, and I�m delighted to be here.
So let me say a little bit about foreign aid.
I�m in favor of foreign aid, so it�s the
kind of foreign aid that we�re talking about.
And the kind of foreign aid I think is terrific
is the sort of, if you like, the foreign aid
that builds global public goods or that does
work on health. For instance, there�s enormous
advances in the understanding of HIV/AIDS,
for instance, and vaccinations, and so on.
These were all discovered and developed in
the First World�there are a few exceptions�and
gifted, as it were, to the Third World, and
did enormous amounts of useful things there
in saving people�s lives.
What Dr. Falk was referring to is I worry
a lot about African countries where almost
all government expenditure is coming from
external sources. And that, to me, is the
really crazy thing. And those governments
have no incentives at all to respond to their
people, because the only incentives the have
are to deal with the aid agencies and to work
with the aid agencies.
The China and India example she gave if you
look at the percentage of GDP that India and
China have had as aid, it�s completely trivial.
Those are the great success stories. The stories
that look very bad are the African ones. And
if you just read the African literature and
you read people who�ve worked there and
worked with the aid agencies and worked with
the governments, the corruptive effect of
aid on these governments, of them turning
away from their people, is just astronomical.
So I think�I accept the moral responsibility
of us who are so well-off to do something
about these people who are so poorly�so
poor. But the moral responsibility we also
have is not to hurt them, and I think a lot
of aid has, unfortunately, been hurting. Not
that every project is bad, but I think the
long-term consequences.
So I would have a policy that says no government
in Africa should be getting more than 20 percent
of its government revenue on a permanent basis
from abroad. Otherwise, it�s just not going
to work. You need a contract between the government
and the people if the country is going to
develop at all.
FALK: All right. So, as a follow up in that�in
the aid, is�where is the line? In other
words, if it�s 20 percent for Africa, is
there a moment in which you say no aid should
be given? And is corruption a piece of it?
How do you�how do you�how do you aggregate
statistics or look at numbers and find about
corruption? I mean, it used to be called �la
fuga� in Latin America, the flight of capital.
But how do you deal with that? And at what
point do you just say there�s no aid?
DEATON: Well, I mean, I�m a pragmatist,
I think. I think in the world as it is, trying
to sell a policy of no aid is not going to
happen, and it�s not worth talking about
it, so I don�t go there. On the other hand�and
just about corruption, I mean, there�s plenty
of corruption in the world without aid, right?
You don�t need aid to generate corruption.
(Laughter.) The U.S. doesn�t receive a lot
of aid, you know; we�re completely corruption-free,
of course. (Laughter.) So that shows that�(laughs)�you
know, it can�t just be aid.
So it�s not�the corruption is only part
of it, though the corruption is the most visible
part. I think what it is, is that economic
development or political development or the
sort of development that really matters ultimately
comes, and historically has always come, from
some sort of contract between the governed
and the governs�the government and the governed.
And that contract is deeply undermined if
the government never has to raise any revenue,
does not have to generate any services for
its people, because essentially all it has
to do is play games with the aid agencies.
FALK: And because I can�t let this one go,
just one last, which is I just heard at the
U.N. a briefing where some people were recommending
giving cash, that that�s better. It seemed
to�it was a shock to me because, how do
you give cash? But is it better to give directly
to the people, the people-to-people kind of
programs? And does it matter what the government
is, if it�s a dictatorship or it�s a democracy,
in terms of aggregate numbers?
DEATON: Well, you know, Peter Barr (sp) said
a very long time ago that in the conditions
where the government was a good government
and was working in the aid of their people,
you don�t really need foreign aid. And in
the countries where you really need foreign
aid, where the people are suffering�those
are the dictatorships�those are the places
where, if you give the money to the government,
it�s not going to work. So you�re caught
in this fork all the time, which has never
really been�and if you look at the aid agencies,
they�re forever oscillating between one
side and the other. They say we�ll give
money to countries that are well-run, and
they do, but of course that doesn�t do very
much for poverty because that�s not where
the poor people are. (Chuckles.) And then
they say, OK, we have to give them to�and
they have all sorts of euphemisms for this��low-income
countries under stress� was one that the
World Bank had for a while, the LICUS countries.
And that, of course, means they�re nasty
dictatorships, they�re people we can�t
trust. And so we have to give money there.
Well, how do you give money there? Well, it�s
awful, I mean.
And the idea�the cash idea has become very
fashionable, which is, you know, we can give
everybody a cellphone with a bank account
on it, and we can ping money into their accounts,
and all these people will be liberated. But,
I mean, do you really think that a dictatorial
government, in the end, would put up with
that without managing to get a hold of that
one way or the other? And, you know if a bunch
of people are�you know, a bunch of researchers
from MIT or from the U.N. are out there doing
randomized controlled trials in those countries,
they say, oh, people like getting money. Well,
I knew that before they did that, you know?
(Laughter.)
So the issue is not�it�s the unintended
consequences of what happens in the long run
if you give people lots of money. And, you
know, if there�s enough money out there,
the guys that run the country, you know, they�re
going to get it. I mean, that�s what happens.
That�s the nature of power. And I don�t
think you can buy your way out of that. So
I think mass cash�it�s one of these things
that works on a small scale, you know, because�(chuckles)�the
government thinks, ooh, we�ll let them do
that; you know, they�re going to have this
nice policy. The U.N.�s going to push the
idea that gift transfers will encourage that,
will hatch that chicken. And boy, when that
chicken grows into a big hen, wow, you know?
(Laughter.)
FALK: Ok, we�ve cooked that chicken. (Laughter.)
All right, now on to global�I love the fact
that Professor Deaton has no notes. He is
a laureate. I have�I have a million notes
on everything you�ve written. But�
DEATON: Well, I wrote the book. It�s still
in my head. (Laughter, laughs.)
FALK: And gone into the research. I mean,
I think what�s most fascinating is the consumption
research that for so many years the statistics
of international organizations were based
on surveys, and you�ve gone beyond that
to look at what people actually do, not what
they say they do.
But, now, global�you said that globalization
improves the life of the poorest people, and
that is a good thing, even if it hurts some
rich people. But you also said that you�re
not so sure anymore, which I found the most
interesting�that, especially given the recent
research that you and Professor Anne Case,
your wife and coauthor, that illustrates a
very alarming trend. And this is something
most of us have read about recently, that
the U.S.�U.S. middle-aged white Americans�middle-aged
white Americans with relatively low education
are experiencing rising mortality from alcoholism,
drug addiction, and suicide. Now, that�s
all at the same time that it is�that every
other racial and ethnic group somehow has
decreased, but this has increased. So something
has gone terribly wrong. This seems to be,
as I read and read and read, a point that
is taken on the side of both Republican and
Democratic campaigns. So somehow you�re�you
can be seen in one way or another. So maybe
explain�if you can explain what this survey
says, why is it that middle-aged white Americans
are killing themselves? (Laughs.)
DEATON: Well�(laughs)�you�ve said what
we know. I mean, what we disclosed was the
fact, and it�s pretty astonishing that no
one had noticed this fact before. The CDC
was jumping up and down with glee that the
white-black mortality gap was closing, but
a lot of that was happening because whites
were dying in larger numbers. And so this
turnaround is just historically an astonishing
state of affairs because we�ve been used,
for the best part of a hundred years, to the
steady mortality decline. And for this group,
this very important middle-aged group, this
mortality rate has really turned around.
And when we first found it and we said, well,
what�s causing it, you know, we went through
the things. Was it a decline in heart attack�you
know, was the war on cancer losing? Was the
war on heart attacks losing? No, these were
all doing just fine. I mean, is it murders?
It is traffic accidents? No, it�s not those
things. So what is it? It�s largely poisonings.
And we thought, my God, what has happened?
You know, are people mistaking Drano for milk
or something, you know? What�and of course�(laughs)�poisonings
is what the CDC classifies as drug overdoses.
And you don�t want to think about this.
A lot of it is heroin overdoses, which is
what, you know, we�re used to, but a lot
of it is opioid overdoses. These are legal
painkillers that are being subscribed in incredible
numbers.
The U.S. is consuming about 95 percent of
all the world�s supplies of opioid painkillers,
and enough opioid painkillers are prescribed
in the United States every year for every
adult in the United States to be on opioids
for one month a year. I mean, there�s just
an incredible outpouring of this stuff, and
it�s killing people.
Now�
FALK: Now, you said you also stumbled onto
this. Can you explain that?
DEATON: Well, we were working on suicide,
and we wanted to put suicide in the context
of overall mortality. And then we saw for
this group that overall mortality�so it
was not just suicides, it was those poisonings
as well.
But you asked me why this�what has this
got to do with globalization, and I�m like,
you know. So I�ve always taken�like most
people who work on global poverty, I spend
a lot of my life�and the Nobel Committee
was kind enough to cite it�thinking about
how to measure global poverty and global inequality.
And I�ve always taken the position which
is�you know, I�ve done a lot of work over
the years for the World Bank, and I think
this is a pretty accepted, in those organizations,
cosmopolitan position�globalization has
dragged or pulled or liberated hundreds of
millions of people from poverty, in India
and China in particular. And those people
were really poor to start with. So this is
just like an incredibly major achievement
in the world.
So when you think the world is going to hell
in a handbasket, which it sort of is right
now, you have to look back on those amazing
achievements. And a lot of those have come
from opening up markets, you know, from greater
international trade, from all the things we
know about. And the sort of cosmopolitan position
is, OK, maybe some people in the U.S. and
Western Europe were hurt by this process,
but you know, they�re really well-off compared
with the people in China and India who are
being helped. So if you take this sort of
positon, that we prefer to help people who
are poorer than people who are richer, then
this seemed like a pretty good thing.
And so, however, when you see these middle-aged
people�and these are the people in the U.S.
who are bearing the brunt of this�these
are the people who used to have good factor
jobs with on-the-job training. These are the
people who could build good lives for themselves
and for their kids. And all of that has gone
away. The factory�s in Cambodia, the factory�s
in Vietnam, the factory�s in China, wherever.
And, you know, there�s been a lot of dispute
between the right and left as to how badly
off them are. You know, are the price indices
correct, are median wages really falling,
and so on. But when you actually see them
killing themselves, you know, and the mortality
rates are going up, then you think something
really, really seriously has gone wrong. One
of my colleagues�an anthropologist, Carolyn
Rouse�has used the term these people have
lost the narrative of their lives.
Now, Pamela asked me the question, you know,
why? We don�t know why is the answer. And,
of course, everybody has their theory, and
that�s where�but, I mean, it�s hard
to believe it�s not connected up with those
20 or 30 years of declining economic prospects
for people with only a high school education
in the United States. And, you know, somehow
we�ve got to find a way�I�m not against
globalization. I�m certainly not going to
go for protectionist solutions or something.
But we�ve got to find a way of sharing the
benefits with those people, too�and if not
with them, at least with their kids.
There�s a new book by Kathy Edin which also
gave me pause. They�ve documented there
are a large number of people in the United
States living on less than $2 a day, and that�s
the World Bank�s global standard for global
poverty. So some of these people who have
been left behind are as poor as the poorest
people in India and China, and we�ve really
got to think much harder about this than we
have.
FALK: All right. I want to come back to some
of those questions, but I want to move on�and
then we�ll come back�to effective altruism.
And that�s also a topic you have been widely
reported about, your views, Professor Deaton,
and that�s you have questioned how billionaire
philanthropists can reliably help the world�s
poor, whether they can use�and in your�in
your analysis, can they use randomized controlled
trials in developing countries to find out
what works? And so you�ve drawn criticism
from some of the famous billionaires, including
Bill Gates, even though he did write a jacket
comment on the book, and his point was you
come away with�confused about what aid does
for people. Now, effective altruism talks
about how billionaires, if they can give money,
how does that work, and will it actually help.
And you�ve been somewhat critical of that.
So�not that I�m saying billionaires listening
around the world and in this audience�how
do you help�(chuckles)�is the bottom line.
DEATON: It�s complicated. I think one of
the things that billionaire philanthropists
are discovering is it�s actually very hard
to give money away in an effective way�in
a way that you really believe is improving
the world. And actually, that it�s hard
is the right answer, right? And the worst
thing, I think, about the effective altruism
movement is it pretends it�s not hard. It
says we have a magic solution which will really
help you do this. And the trouble with magic
is, it only exists in Harry Potter novels.
You really can�t use magic to make the poor
of the world less poor.
So I could tell you a little bit about what
the magic is, and my colleague and friend,
Peter Singer, is one of the big advocates
for this. And he�s always taken this view,
which I agree with, that, you know, we owe
a lot to the poor of the world. The fact that
they live a long way away is sort of irrelevant.
We still owe something to help them.
FALK: Are�oh, I�m sorry.
DEATON: Yeah. But he says, OK, but he doesn�t
really believe in the World Bank or he doesn�t
really believe in foreign aid, and many people�you
know, as officially constituted. So they�re
trying to find better ways of doing this,
and they think they found a solution in this
new movement to do randomized trials�randomized
controlled trials, like in medicine, all over
in Africa and Asia and Latin America, to sort
of find out which interventions work. And
I don�t think it makes any sense to think
about which interventions work.
I mean, just to take one example, there�s
a famous randomized controlled trial by a
couple of economists that was done in Kenya
which showed that de-worming children would
improve their school performance. They had
better test scores. And the idea is that,
you know, if they�re healthier, they�re
more likely to come to school, and they don�t
miss the class in which you learn how to take
logarithms or do the multiplication table
or whatever. It sounds terrific. But one of
my coauthors I worked with on this lives in
Oxford in England. She�s a philosopher,
and she has a granddaughter she lives with,
and her granddaughter�s not doing very well
in school. So she said, hey, I know what I
should do�(chuckles)�I should give her
de-worming pills�(laughter)�that�s what�s
wrong.
No, I mean, that�s a joke. But if you draw
a line from Kenya, where it supposedly works�though
there�s actually been a lot of really good
work recently suggesting it doesn�t work
at all, even there�to Oxford, you know,
somewhere along the line those pills stop
working. And that�s the hard problem: you
know, do we know where they work? What are
the circumstances under which they work? And
so this what works slogan is terribly misleading
because it�s giving people the idea that
there�s a single thing that works, you know,
and it works everywhere. And that�s what�s
wrong.
And, you know, evidence accumulation is really
hard. It requires serious scientific effort.
We�ve got to connect up all the things we
know. There is no magic bullet. And so the
effective altruism, which is�you know, there
are sites like GiveWell and others that are
listing, if you�re a philanthropist, you
know, here�s where you should give your
money, and they�re all things like that.
They�re things that have been shown to work
in one place, often under disputatious circumstances.
But, you know, the idea somehow that if you
did a randomized control trial and it�s
true in one place it must automatically be
true somewhere else is nonsense, and I think
they�ve just walked into that trap.
FALK: I keep trying to get so much out of
you in the time we have. But I�
DEATON: I�m trying to talk�(inaudible).
FALK: (Chuckles.) Since your point is not
don�t give the money, but know where you�re
giving it, I want to turn one second to the
next generation. And you said at one point
in the new Millennials and hedge funds that
you�re worried about high-paying jobs in
finance and other fields; we�re diverting
talented young people to more worthwhile pursuits.
And there are some masters of the universe
here and around the world, and you happen
to have one in the family. And you have some
experience with what they can do for the rest
of the world. So could you explain?
DEATON: Yeah, we both have children in the
hedge-fund industry, so, you know�
FALK: Well, that�s true. (Laughs.)
DEATON: �it�s a good thing to think about
the good things and the bad things associated
with this sort of activity.
So the point I just made in the book is�and
this doesn�t just apply to hedge funds;
it applies to many of these sort of banking
activities�that I think banking is incredibly
important. I think generating liquidity, financing,
entrepreneurship, and all the rest of it is
incredibly important. You know, I�m not
one of these people that wants to shut down
Wall Street or shut down the banking industry.
But it�s hard to find social value in some
of the activities that are going on in Wall
Street. So, you know, employing people who
build, you know�a computer is not fast enough
anymore, so you have to build a dedicated
chip that sits on the fence around the stock
exchange that�s being set up and is even
faster than your neighbor�s guy, and you
can make a lot of money that way, it�s hard
for most of us�most economists, at least�to
think there�s a large amount of social value
in that. But there�s a lot of private value.
Now, if you get that situation, then a lot
of the world�s smartest kids are going to
finish up building those boxes that sit around
the stock exchange. And, you know, maybe they
should be doing something better with their
time, especially if they�re the most talented
kids that we have�I mean, that are the superstars
out of Harvard and Princeton and so on, and
they�re finding it more fun to go work in
a hedge fund than to go, you know, build an
iPhone or solve cancer or, you know, do something
about world poverty.
FALK: But then you did have a postscript about
the solving cancer.
DEATON: Yeah, I had a story here which�(laughs)�Pamela
really liked and I could tell you.
So, when the book came out, my son said come
to D.E. Shaw, where he works�(laughter)�and
talk to these people, and tell them some of
the things you said. So, you know, we had
a really�and it was terrific. And�some
of the smartest people I�ve ever met there.
You know, I meet a lot of smart people. I
give a talk at Princeton and there are people
coming at me and we have lots of interchange.
At D.E. Shaw it was even better. These guys
were fabulously smart. So we had a really,
really good discussion. And I told the story
about, you know, maybe you shouldn�t be
here, you should be out there curing cancer.
And so�and it was interesting, though, that
the to and fro was much more pronounced on
one side of the room than it was on the other
side of the room. And so, when Adam�my son�and
I had dinner afterwards, I said to him, you
know, I get the sense there were two audiences
there. And he said, oh, that�s the other
half of the company. And I said, what do you
mean the other half of the company? You know,
you have two companies there? And he said,
yeah, those are the guys who are curing cancer.
And David Shaw has invested enormous amounts
of money in having a bunch of guys in the
company who are building computer models of
the way that cancer cells grow. David Shaw
was elected to the National Academy of Sciences
a couple of years ago, not for becoming a
bazillionaire but for his work on curing cancer.
So I think that�s a lovely story. I don�t
know what you think of it. It does tend to
take you back to sort of the medieval times
and so on, when you had these�you know,
the Medicis who were responsible for so much
of the art in Florence and so on. And, you
know, I�m sure there�s a role for that.
You know, this is a role that philanthropy
can play.
And so again, you know, I don�t want to
think�it�s effective altruism movement
I don�t like. I love philanthropy. (Chuckles.)
I mean, it�s terrific. And, you know, that
might be a story which suggests there�s
some�(inaudible). I still don�t think
it�s a great idea for the smartest people
in the world to be building super-fast boxes
around the stock exchange.
FALK: All right. We�re ready to turn to
the audience questions on what has been dubbed�I
assume you know this��Deatonomics��
DEATON: Really? I hadn�t heard. (Laughs.)
FALK: �(laughs)�and the bigger questions
of inequality, as you wish to ask, now. Wait
for the microphone and speak directly into
it. And I may know you, but please state your
name and affiliation. And limit yourself to
one question just so we get as much in as
possible. Please.
Q: Thank you. Thank you, Professor Deaton.
Juan Ocampo with Trajectory Asset Management.
Have you been able to look at any cohorts
outside of the United States like, you know,
the ones who have lost the narrative for life�Canada,
Germany, Britain? And looking at them, have
they behaved differently? And does that imply
anything in terms of what we should be doing
here?
DEATON: That�s�I mean, that�s a research
program that�s ongoing. But the gross fact
is that you don�t see it anywhere else.
So if you track through the �80s and �90s
for the 45- to 55-year cohort, the mortality
rates in the United States are going down
in parallel with France, Germany, Switzerland,
Australia, everywhere, and Canada, and they
go down like that. And then around 1997 the
American one goes the other way, and all the
others go on exactly the way they�re going.
So we don�t yet�what we don�t have is
we have not disaggregated those by education.
And there�s no very straightforward way
of doing that. I mean, in the U.S. it�s
hard because you have to get 26 million death
certificates and go through them one by one,
essentially. And it�s going to take us a
while to be able to do that elsewhere.
But, I mean, people have argued that it�s
because the social safety net is so much stronger
in Europe. But that�s only one hypothesis.
And it could be that Europeans are much more
socially solid�you know, they�ve not lost
the narrative of their lives or whatever.
But anyway, but it�s not happening.
FALK: Maybe they go home earlier at night.
DEATON: Or they don�t come to early-morning
breakfast. (Laughter.)
FALK: (Laughs.) I�ll come back. Yeah. Yes.
Q: Esther Dyson from the Way to Wellville.
On the second half of that question, I�ve
looked at the numbers and read what I could,
but I could never find�did they disaggregate
even between men and women, among the less
educated? And what were those numbers? What
was the�
DEATON: They�re not that different�
Q: Really?
DEATON: �between men and women.
Q: OK.
DEATON: And it�s very interesting, because
the press thinks it has to be met. (Laughs.)
So you actually get very good articles like
New York Times, which say it�s men and women,
and the headline says middle-aged men killing
themselves. (Laughs.) So the headline writers
just want to buy this idea that women are
doing this too. But it�s spreading in places.
I mean, there are people�the police in the
Northeast are bringing Narcan so that people
who are found dying on park benches, one of
which is in my hometown, Princeton, New Jersey,
you know, could be given this drug and have
some reasonable chance of breaking down. And
as I�m sure you�ve noticed, every politician
in every political party in the election is
talking about this, though they misquote us
at enormous length. I mean, Hillary likes
to say that middle-aged people now have a
life expectancy lower than their parents,
which is complete nonsense. This is about
mortality rates, not life expectancy.
FALK: Any other candidates misquoting you?
DEATON: Well, Bernie talks about life expectancy,
but he doesn�t do this thing about parents
and children. But even Joe Stiglitz got the
life expectancy thing wrong. So, you know�
FALK: (Laughter.) All right. So at least we�re
clarifying it.
Yes, please.
Q: Hi, Professor Deaton. My name is Nili Gilbert.
I�m a co-founder and portfolio manager at
Matarin Capital. So I�m going to have to
talk to you after the break about a vision
for how hedge funds can be a positive catalyst
of social value.
DEATON: Right.
Q: My question for you is really about the
aspect of your work that focuses on individual
choice and particular survey�and particular
survey work that then challenges a lot of
the assumptions about aggregates�aggregate
demand, for example�
DEATON: Yeah.
Q: �that are widely held in classical economics.
And I find it particularly interesting that
another recent Nobel Prize winner, Daniel
Kahneman, his work about individual choice
also challenged basic assumptions about homo
economicus as a rational decision-maker.
I wonder whether you see a broad trend in
which our understanding of the individual,
of individual choice, of greater acceptance
of survey work in traditional economics, may
ultimately present a broad challenge to the
basic assumptions that we�ve all been taught
in classical economics and what that may mean
for the discipline going forward.
DEATON: Right. Great question. It makes me
very happy, because the answer to all of these
things, I think, is yes. (Laughter.) And when
I leave here, I�m having lunch with Danny
Kahneman. So we argue all the time, because
we both think economics should be taken apart,
but in somewhat different ways.
I mean, Danny, in spite of having a Nobel
Prize in economics, hates economists and hates
economics. And, you know, I�m sort of an
exception. I like to have lunch with him from
time to time. But I�d love to talk about
the aggregate thing, because I think this
is something that�s made me very happy in
recent years, that it�s�I mean, there�s
two views on whether the underlying homo economicus
assumptions need to be changed. And I think
they do need to be changed. But a lot of what
we used to believe must be true too. So that
synthesis is something that�s going to be
a task for professional economists over the
next 20, 25 years.
I think the disaggregates, though, that is
something that was cited all over the Nobel
Prize. And it clearly is changing. So when
I talk to my macroeconomic colleagues at Princeton,
the people who study the macroeconomy and
all the stuff that you guys probably are most
interested in, they�re working with micro
data too. They�re working with individual
data, because they really believe that what
happens to individuals matters to the macroeconomy.
And so, you know, inequality and poverty are
just not visible in the aggregate statistics.
GDP can�t tell you anything about inequality.
It can�t tell you anything about poverty.
I mean, you know, if you take out the top
1 percent, France is growing faster than the
United States, for example. And, you know,
so those sort of statements, we�ve got to
get down to there. And that�s where they�re
going. And I think modern macroeconomics,
maybe outside of a few central banks, has
fully adopted that. And that�s very much
the intellectual frontier. So your sense is
exactly right. And I think we�re going to
build inequality distribution into the macroeconomy.
And, of course, one of the big forces for
that is just the availability of data. You
know, it used to be, when I started out, you
just couldn�t get the micro data. You know,
the government collected surveys, but they
weren�t published. You couldn�t get the
data. And so that�s been a battle that�s
been won, and now there�s more data than
any of them can handle.
FALK: Well, on that front, one example was�that
I found particularly interesting was in India
that malnutrition and poverty went in an opposite
direction from what people generally thought.
But let me go�let me not take any questions
away. Yes. And then I�ll come over here
right after.
Q: Afsaneh Beschloss, the Rock Creek Group.
Professor Deaton, you have written a lot also
about the role of multilaterals and what should
happen to their funding. What you are talking
about, I think, makes a lot of sense on the
government help that the bank and other institutions
have been doing. But if we look at China and
India, they also benefited hugely because
the multilaterals gave them loans, but attached
to that there was a lot of technical assistance.
And they were like a sponge. They really used
the best of the best of that.
DEATON: Yeah.
Q: But those went hand in hand because the
bank doesn�t have the funding model and
other multilaterals don�t have a funding
model to just provide TA.
So, sort of looking forward�since it seems
like part of aid worked pretty well, the other
part didn�t work well�the other side of
it is that if we look at the emerging markets
right now, health sector and education are
probably the highest-returning assets in those
countries even today if you look over the
last 10 years, as rewarded by the markets.
Where do you see sort of that differentiation
between providing the public social goods
versus other�you know, infrastructure and
other sort of hard sector in terms of the
role of multilaterals in the future?
DEATON: Yeah, I think it�s always something
that has been�the bank has, I think, rightly
been criticized for. The technical assistance
was always tied to the lending program. And
so as the middle-income lenders�the middle-income
borrowers have sort of fallen away from the
bank because it�s much easier for them to
get funds elsewhere, they�re deprived of
that technical assistance.
And for any of us who know the bank well,
you know, there is a lot of technical expertise
in there. It tends to get contaminated by
politics from time to time. So whatever is
the fashion in Washington becomes�you know,
gets into the technical assistance too. But
nevertheless, I would love to see the bank
become a primarily technical-assistance organization
in lots of ways. I don�t see why it should
compete with other private-sector actors in
that thing as a source, but, you know, as
a generously well-funded global source of
technical assistance that�s available to
all countries around the world. So I�d really�I�d
really like to see that.
I think there�s a lot of expertise on the
health and education front too. But as you
say, I mean, a lot of it is being handled
by the private sector. I�m not sure the
bank�I�m very�well, I don�t want to
go there maybe. There�s a lot of technical
expertise in health that really isn�t technical
expertise. I mean, it�s clear that they�re
very, very good at dealing with emergencies
like Zika or Ebola, in spite of, you know,
maybe it was not as well done. But that�s
really hard stuff.
And, you know, there are traditional public
health measures that work in that sort of
system. And the WHO and other people know
how to do that. But there�s a lot of other
steps that seems to me�you know, there�s
a huge campaign these days to push non-communicable
disease agenda out into the world. And, you
know, it�s true that a lot of people in
India are dying of diabetes and so on, but
that�s because India is a very large�there
are a lot of people in India. And I really
worry that the malnutrition agenda which Pamela
talked about, which I think is still incredibly
important in India, is going to get derailed.
You know, we have a habit of pushing First
World health agendas onto poor countries around
the world. And I don�t�I think that�s
a habit we should break ourselves of.
FALK: And to clarify, the malnutrition leading
to poverty versus poverty leading to malnutrition,
just because it�s a great point.
DEATON: Well, it�s just that one of the
things one of my coauthors and I�I worked
with this very interesting guy. He�s one
of the best economists I know, who�s a much-hated
activist in India. He wanders around getting
beaten up by the police and generally agitating
and causing trouble. And he�s had enormous
effects in India, and he works on right-to-food
campaigns, essentially. His name is Jean Dreze.
And what we found was that, in spite of all
the economic growth in India, which has historically
very, very high rates of growth�and it�s
not just going to the rich; I mean, you can
see growth among poor people in India, too�their
per capita calorie consumption is going down
and has been going down for 20 years, even
in a country where about half of all kids
are severely malnourished. I mean, they�re
at the sort of level where, if you took them
to your pediatrician here, he would go, �aah��you
know, we�re taking that kid away from you
and we�re going to put it on a proper feeding
program.
And why that�s happening is sort of one
of the great mysteries. And, you know, we�re
still trying to figure that out. But it�s
one of the big puzzles in development economics
right now as to why that�s happening. Malnutrition
is getting better, though, so that these kids
are getting taller and a little less skinny.
And so there�s�this is, I think, the point
that Pamela�s pushing, which is, you know,
there�s not a one-for-one link between eating
food and health either.
FALK: Right. The statistics�your micro-analysis
is often that the statistics aren�t what
they appear to be�
DEATON: That�s right.
FALK: �and that you have to get them from
the source. All right.
DEATON: Yeah.
FALK: Here, another one. And then there�s
one back here.
Q: I can sit down, right?
DEATON: Sure.
FALK: Yes, you may.
Q: OK. Thanks, Pam.
My name is Evelyn Leopold. I�m also a resident
correspondent at the United Nations. And I�ve
lived in Africa, and I�d like to return
to that. I�ve lived in Kenya when I was
Reuters editor for Africa, which is a favorite
group for�a favorite place for aid groups,
because it�s�it functions a bit better
than other countries and it�s good for R&R.
But I�d like to turn to Burundi. And if
you�ve looked at that recently, most of
the functioning institutions depend on foreign
aid, and mainly from Europe, France and other
countries. And now that there�s a huge conflict,
this has diminished and in many areas stopped,
and it�s made the conflict even worse. I
wonder if you�ve looked at that.
DEATON: I haven�t looked at Burundi, but
you see, I would put almost the opposite interpretation
on what you�re talking about, that�I mean,
these institutions have been allowed to fester
because there�s so much foreign aid. Kagame,
next door in Rwanda, would be�may be an
even more extreme example. I mean, he�s
been the darling of the foreign-aid industry.
And, you know, he�s been very successful.
Or at least, under his watch, infant mortality
rates and so on have come down. The aid agencies
love him, and they pour money in there. And
he uses it to persecute his enemies and establish
a dictatorship.
And, you know, this has happened over and
over again in Africa. And those people don�t
have to do�I mean, they can seek third terms
or fourth terms or life terms as presidency.
And, you know, they�re consolidating their
power on the back of Western aid. And they�re
very�and Kenya is another very good example.
I mean, you know, the masters of Kenya have
been the masters of playing games against
the foreign-aid agencies. And, you know, the
foreign-aid agencies say why hasn�t Parliament
met in years? And they say, well, we don�t
need Parliament because we�re getting all
our money from you guys. And so you guys say,
OK, we�re shutting down our aid. So they
shut down the aid. And, you know, people panic
for a little while and they open the Parliament
again, maybe a couple of meetings, and then
all the aid guys say, great; they�ve reformed.
Right? So they turn the aid back on again.
They pull up the shutters in the Parliament
and they give all the members of Parliament
a Mercedes, and everyone goes home happy.
So, you know, these people know that the aid
agencies need to give them money even more
than they need to give money, because they
can play different countries off against one
another, and so on. So I think this is just�you
know, you�re seeing the underbelly of what�s
really going on here.
FALK: That one�s one to ponder.
Yes. There are two questions back here. All
the way in the back and then over here. Yeah.
I see the hand. And then you�re next. And
then we�ll come over here. Thank you.
Q: Professor Deaton, my name is Bhakti Mirchandani.
I work at One William Street. Thank you for
your comments.
Returning to the earlier part of the Q&A session,
you mentioned that the U.S. needs to find
a way to share the benefits of globalization,
if not with middle-aged high school-educated
white individuals, at least with their children.
DEATON: Right.
Q: From your perspective, what does that look
like? And how can it be most effectively done?
DEATON: I wish I knew more about that. But,
you know, education is one of the things that
I�ve never really worked on. And so I certainly
don�t want to go on the record about recommendations
for U.S. education policy.
There�s a terrific relatively new book,
just last year, by Bob Putnam called �Our
Kids.� And he�s making the argument that,
you knew, he grew up in�I think it�s called
Port Clinton, Ohio, which is a relatively
poor place, and he was not particularly well
heeled himself. But he�s tracked what happened
to him and what happened to the other cohorts
he grew up with. And they all had the opportunity,
rather like I had the opportunity, to percolate
up through the educational system and become
a professor at Harvard or become a professor
at Princeton.
He thinks those opportunities do not exist
anymore. And the trouble is, to know that
for sure, we�re going to have to wait 25
years until we get the data on the adult education,
the earnings of those people who are their
kids now. And he�s rightly impatient with
that and has written this book looking at
just how hard it is for these parents who
are not doing very well.
And, you know, I would guess that part of
what Anne and I are seeing in our data is,
you know, one of the things that would really
make you despair in middle age is not only
if you were not going to be better off than
your parents, but if you thought your kids
were going to be even worse off than you were
going to be and if the kids are turning to
drugs and all of that too. I think that would
make me despair.
And so this story�I mean, I think these
two books�the other one I mentioned is Kathy
Edin�s book on living in America on $2 a
day. You know, those are very, very depressing
books. And you�re really talking about under�first
of all, there�s poverty by global standards
in the U.S., and secondly, that the inequality
of opportunity�equality of opportunity,
which has been the great standard in the U.S.
and the thing which right and left, you know,
coalesced around, that we really want to give
equality of opportunity to our kids, seems
to be under threat too.
And so, you know, we�ve really got to find
some way of sharing. And, you know, the thing
that makes this harder and harder is this
falling rate of economic growth over time,
because, you know, if you�ve got a healthy
rate of economic growth, everybody can get
something. But if we�ve got a growth that�s
closer to zero, the only way I can get something
is if I take it away from you. And that certainly
has got a lot to do with the polarization
and bitterness in American politics today.
FALK: All right, Wade, hold on one second.
You�ve been very patient over here. And
then I�m coming back.
DEATON: I�ll try to be shorter in my answers.
I know we�re running out of time.
Q: Margaret Cannella with Columbia Business
School.
In terms of looking at effective poverty alleviation,
what do you think about micro-finance and
micro-finance efforts?
DEATON: Again, I�m not an expert on that,
so let me preface. The people who spend a
lot of time studying it are coming away with
that with pretty negative beliefs now. I mean,
there�s a lot of people who deeply believe
in it almost as this sort of religious faith.
But there seems to be not very good evidence.
I�m not a great believer in RCT, in randomized
control trials, but the stuff on that has
not been very positive.
I think what tends to happen is a few people
do incredibly well. And most of the other
people just don�t really benefit from the
money. Now, how you think about that, you�re
creating inequality. On the other hand, you
could say you�re creating opportunity. It�s
the way opportunity is. But I�m�from what
I�ve seen, I have not been super-impressed
that that�s been a major solution.
FALK: We�re about to go here. I have one
quick follow-up, though, I have to ask. Since
you�re talking about inequality�and it�s
sort of an imponderable, so you can move it
into another question�but the inequality,
does that mean in economics? Inequality in
political systems, we understand. And your
point is it can make inequality in a political
system. But is equality the goal? In other
words, if Bill Gates reduces his salary to
mine, will that make anyone happier? And does
the�do the poor�do the rich have to lose
for the poor to win? So part of the question
is where does the equality come from? Is it
not just disparate income or poverty and inequality
on the political front?
DEATON: Yeah. I mean, what you�ve raised
is there are a million different definitions
of inequality and equality. And economists
tend to use it in the fairly narrow sense
of the spread of the distribution of income.
FALK: Right. OK.
DEATON: But there�s a lot of other equalities,
like political equality, which don�t really
work that way.
I actually�I think you and I are on the
same side, which is I don�t think equality
is intrinsically valuable, meaning in and
of itself. I�m not against inequality. (Inaudible.)
You know, if Bill Gates gets another hundred
million dollars, it�s no skin off my nose.
But it is if he uses it to undermine something
I care about. But that�s an instrumental
view of inequality, and I think the more convincing
arguments against inequality are the dangers
it brings to our political system.
FALK: That was so concise, it was unbelievable.
Thank you.
Yes, right here in the middle. Yes.
Q: There are two.
FALK: Oh, OK. And then you can, right afterward.
The two male questions for the first�
Q: (Off mic.)
FALK: OK. Go ahead.
DEATON: Speak for yourself. (Laughter.)
Q: Professor, I�m curious, in terms of effective
philanthropy in particular, what role you
see�
FALK: I�m sorry. Can you�
Q: Oh, I�m sorry. I�m Larry Coben with
the Sustainable Preservation Initiative, and
I�m curious what role you see for other
social sciences with respect to effective
philanthropy, collaborating with economics.
To some degree, when you describe the path
from Kenya to Oxford, that�s an anthropological
and a sociological question. And I don�t
see a lot of interaction between the fields,
at least not in my university and some others,
where economists, anthropologists and sociologists
gather to address some of these kinds of problems
from a multidisciplinary perspective.
DEATON: Well, that�s interesting. Maybe
I�m just lucky at Princeton, because I do
see that. And I think it�s relatively new,
but one of the things�actually, in my closing
speech in Stockholm, that was�and I only
(got two minutes ?)�one of the things I
said that pleased me most that, at this point
in my career, was just seeing the convergence
of areas that, through most of my working
life, have been very disparate.
So, for instance, I spend a lot of time talking
to philosophers at Princeton. And also there�s
been�philosophers have gotten much more
interested in practical stuff. Of course,
you know, that can be a problem, because they
don�t have any idea about how the world
works, right? (Laughter.) And�but that�s
the effect of altruism debate in some sense.
You know, the philosophers are reminding us
that we have a duty, a moral duty, to deal
with this stuff. And, you know, we say, OK,
but it�s not as simple as you think it is.
And so I think that�s a good example.
But I talk to political scientists. Some of
my best friends are sociologists. The two
books I just recommended�Bob Putnam is a
political scientist and sociologist, and Kathy
Edin is an ethnographer. And so I just think�I
mean, I�m sorry if you live in a benighted
neck of the West, but�(laughs)�I think
this is really happening, and I think it�s
terrific. And, you know, I had the great privilege
to have Danny Kahneman in the office next
to me. And, you know, that changed my life
in lots of ways. We�re still arguing about
that.
FALK: All right, and�
Q: Hi, Professor Deaton. I�m Zachary Karabell,
Envestnet.
So, first of all, I love �The Great Escape.�
You know, I�m a total fan boy of the book.
But I recently had a piece in this issue of
Foreign Affairs about stagnation and looking
at it maybe in a less dire form. And so I
want to kind of question you about that and
your comment just now about it�s harder
when there�s no growth because it�s zero
sum.
Growth in income look at one part of a human
equation, right? They�re simply�they�re
means to purchase health care and material
goods and security and safety. But they�re
only one potential means. So the question
is, if�why aren�t we looking more at the
means side and not just the income ledger?
I mean, if everything is getting less expensive
and everything is getting more obtainable,
then it really shouldn�t matter whether
or not there�s growth, because every dollar
is going to purchase more of what it was designed
to.
Why has that not been looked at more within
economics? And why is Japan held up as, you
know, the fearsome example of what we might
be headed to when�what exactly is wrong
with Japan as a society? So I�d like you
to push that a little further as to�
DEATON: Well, I mean, I think that�let me
give the�just take the easy bit off the
table first. I mean, when we look at income,
we�re looking at real income. So we�re
correcting for purchasing power. Now, we may
not do that very well, which is the deeper
part of that. And Bob Gordon, before he changed
sides, used to argue that we were not measuring
that at all, so there�s much more growth
out there than we think there is, which I
think is sort of what you�re saying, that,
you know, the GDP accounts are just not taking
account of a lot of the extra pleasure we
get from our money. And I believe that. I
just don�t know how big it is.
So, for instance, you know, Bob Gordon in
his new guise about, you know, the world is�productivity
growth has gone away and we�re never going
to be as well off again, sort of tested this�takes
things like iPhones and dismisses them as
toys. But, you know, my iPhone gives me access
to the world�s great literature instantaneously;
gives me access to the world�s great music.
Even more importantly, it gives me instantaneous
access to my kids and my grandchildren. I
can talk to my grandchildren. I mean, to me
those are just enormous pleasures, and those
pleasures are not captured in the national
accounts at all. So that�s part of your
point.
I don�t know how to do that. No one knows
how to do that. And also there�s a worry
that it�s not equally distributed, that,
you know, a lot of people who are getting
those benefits are not like other people who
we�re talking about at the bottom end.
I�m not sure about health care. We spend
an enormous amount of money on health care,
and most of it, I think, doesn�t do any
good; or maybe not most of it, but maybe half
of it. On the other hand, a lot of it does
enormous amounts of good. I�m sitting here
with this cane because I had a hip replaced.
And, you know, if you doubt the benefits of
modern medical care, have a hip replaced.
Actually, I am still dining in. But in a week
or two I�ll be fully recovered, and I won�t
doubt it anymore. So it�s clear.
But that�s in there in some sense. It just
may be that we�re not really capturing it.
And I do think it�s probably true that our
statistical services were designed for worlds
of steel and widgets, and they�re not well
designed for worlds of Internet and services,
things like that. But, I mean, I think�I
don�t know enough about Japan to say that
it�s terrible. But, you know, if you look
at what�s happening in the U.S. and what�s
happening in Europe, which has been pretty
bad, you know, we have only had this very
anemic recovery from the great recession.
Europe hasn�t had recovery at all. I mean,
it had a little recovery, and then it stamped
it out again. And if you look at most of the
statistics I look at, including self-reported
wealthy, that they don�t look very good
in Europe. So I don�t think it�s true.
You know, I�m much more optimistic when
I look backwards. You know, the world is way
better than it was 200 years ago. And I think
the pressure from human ingenuity to live
a better life, which was kindled in the Enlightenment,
is still there and will triumph in the end.
But I�m not sure that we�re doing so well
right now.
FALK: Well, on that note there are so many
more questions, and we clearly could go on
for hours, as well as I could. But I invite
members in New York to come up and speak with
Professor Deaton after the meeting. I would
like to say that Professor Deaton said in
one of the many articles that he hopes his
legacy is carefulness in measurement. And
that seems to be clearly the case.
So congratulations on your award. Thank you
so much for edifying us.
DEATON: Thank you.
FALK: Thank you for the C. Peter McColough
Program. (Applause.)
DEATON: Thank you. Thank you very much. Thank
you.
FALK: Thank you.
DEATON: Terrific.
FALK: And to Richard Haass for presenting
the program. Thank you all for coming.
(END)
This is an uncorrected transcript.
