Nobel Prize for Economics

Dr. Angus Deaton won the Nobel Prize for Economics. His methods for determining the wellbeing of an economy start with the poor and disadvantaged classes – a new attitude among economic theorists.

Mariner remembers a television show hosted by Bill Moyers that aired several years ago. His guests were three economists. Mariner was aghast at the indifferent attitude toward those who lose their jobs because of a major change in the economy. All three economists agreed that fifteen percent of the job market disappears in a major economic shift. That’s just how it is. Sure, there are some unhappy people but that’s how economics works.

A year ago, on Global Public Square (GPS), Fareed Zakaria also had three economists who had the same attitude about the loss of jobs caused by an economic shift. Again, it was estimated, matter-of-factly, that fifteen percent of the work force becomes unemployed.

In common for all the economists mentioned and most others are the formulas and data used to determine the health and efficiency of a given economy. Simply, to avoid pages of economic jargon, economists use bulk data drawn from major industries; they use corporate growth and productivity; they use Gross Domestic Product and trade balances. All this summarized data is plugged into various formulas that provide the measure of success for a given economy.

Angus Deaton won a Nobel Prize for his analysis of poverty, welfare and consumption to determine the health and efficiency of a given economy. His data is compiled from interviews with thousands of individuals rather than summations from corporate and government sources. Deaton measures wellbeing rather than profit. Don’t tell other economists there is a humanist among them; an economist is supposed to have the attitude of an individual with aspergers syndrome – zero empathy. That’s how economics works…

Dr. Deaton’s research is very broad, covering microeconomics, econometrics, macroeconomics and development economics. Mariner will cover interesting bits and pieces but it will require more than one post. The reader may find the mariner referring to Deaton insights from time to time. For now, mariner found observations about the very poor to be insightful and he will share just a few bits and pieces here.

While macroeconomists had been satisfied that their theories could explain the relationship between the total level of consumption and total income in the economy, Mr. Deaton showed that those same theories struggled to explain what individual households were doing. This has spawned a large and productive continuing research program trying to understand the spending patterns of actual households. Angus Deaton is the leading expert on the economic behavior of the extremely poor. In this post, the mariner will describe economic behavior among those earning between $1.08 per day and $2.16 per day. Much of the information is taken from a Deaton-related study, The Economic Lives of the Poor by Abhijit V. Banerjee and Esther Duflo published in the Journal of Economic Perspectives, Volume 21, Number 1—Winter 2007.

The first insight for the mariner was how entrepreneurial the abject poor are. An example is the women of Guntur, India living in the biggest slum. At 9:00AM, many women are sitting in front of their homes with a kerosene stove and a round griddle. For 15¢ (US value), a woman will cook a dosa, a rice and bean pancake; dipped in a sauce and placed in a banana leaf, it is a common breakfast. An hour later, the stoves are gone. One woman is walking door to door selling saris she has decorated with beads and sparkling objects the day before. Income is accrued from other activities including but not limited to labor, collecting trash and making pickles to sell. Women in this large slum have no stable economy, no banks, no lending institutions but they maintain a day-to-day economy solely with their own ingenuity. The economy is virtually penniless but is sustained by simple entrepreneurship providing a cultural stability that allows everyone to participate on a level playing field and to earn enough among each family to survive.

In the United States, there is an intense disdain for the abject poor. The reader can’t survive a day without hearing someone say, “They ought to get off their asses and get a job!” Deaton wrote that the very poor behave the same all over the world. Without meaningful assets, without the ability to borrow, without permanent salary, without decent clothing and with no health care, the poor are more nimble at finding a living where none should exist. What lies in the way of economic equalization from either side is a large abyss between funded culture and the penniless poor. As it turns out, the very poor in Guntur are happy!

Ancient Mariner

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