N.J. optimist, scholar of growth and inequity, wins Nobel Prize

Princeton University's Angus Deaton won this year's $1 million Nobel Prize for economics by bringing his ivory-tower profession down to earth and into homes where people are uplifted - or punished - by social, industrial, trade and tax policies. [See also my column in today's Inquirer; Intro and two chapters from his 2013 book The Great Escape (on how Western capitalism saved the world, unevenly) here; 2010 article he cowrote on personal income, satisfaction and happiness here.] 

Deaton is an optimist about the world's rising living standards of the past 250 years since English and Dutch capitalists began exporting modern methods of wealth accumulation and social organization - with very mixed results but a general rise in life expectancy and quality. He reminded a Princeton audience Monday that hundreds of millions still live in poverty, and many Americans face falling living standards amid "globalization". He detailed humanity's general but uneven progress in his 2013 book The Great Escape: Health, Wealth, and the Origins of Inequality.

The Nobel committee in a statement said Deaton helped discredit old "theoretical" models of how economies work. Instead, Deaton used "empirical" analysis of household-data surveys to better detail effects of changing prices and taxes on calorie intake, mortality, and other measures of personal and social welfare. His work, the Nobel gang said, addresses three questions:    
   - "How do consumers distribute their spending among different goods?"
1980s: Deaton developed the Almost Ideal Demand System, which estimates how demand for any purchase depends on price levels and individual incomes -- now a "standard tool" in economic policy.
   - "How much of society's income is spent and how much is saved?"
1990s: Deaton pointed out the failure of dominant macroeconomic theory to match observed income/consumption relationships through business cycles. Instead, he aggregated individual income and spending data, which has gotten easier with modern computing.
   - "How do we best measure and analyze welfare and poverty?"
2000s: Deaton used detailed, rigorous measures of what households spend to shed light on economic development patterns, living standards and gender discrimination, and show difficulties in measuring poverty.

The Scotland-born Deaton, 69, earned his degrees at Britain's elite Cambridge University back when it gave students few mandatory courses and lots of discretion to pursue their interests, he told colleagues and students at Princeton's Woodrow Wilson School of International and Public Affairs, after learning he had won the prize from the Sweden-based Nobel selection committee that included a Princeton colleague.

The slowdown in Western growth rates since the recession "poisons everything and makes politics much harder," Deaton said. "People's lives are not as fulfilled" as they expected them to be. He sees a "terrifying increase in midlife mortality in the U.S.," with drug, alcohol and suicide deaths at high levels, as formerly middle-class people whose jobs have vanished amid the rise in global trade face lower living standards.

"High income buys life satisfaction but not happiness," Deaton wrote in a 2010 paper with Princeton colleague Richard Kahneman. Their data showed "emotional well-being" peaking at an income of around $75,000; at lower incomes, people have a tougher time handling "misfortunes as divorce, ill health, and being alone." Wealthier people had richer, more diverting lifestyles, and personal capacity, but also felt more stress. More here.