David R. Henderson  

Henderson on Deaton

PRINT
It's hard to teach a central b... Superforecasting: Supre...

Hoover has published my longer piece on Nobel Prize winner Angus Deaton. It's titled "A Nobel for Humanity." It's not my title, but I like it better than the one I gave it, just as I liked the Wall Street Journal's title better than the one I gave it.

I cover ground that I didn't have space for in the Wall Street Journal piece, as well as what I did cover in the WSJ piece, stated a little differently to avoid copyright violation.

In this longer piece, I'm both more congratulatory of Deacon and more critical.

The congratulatory:

The same chart shows another devastating effect--that of Chairman Mao's manmade famine. In 1958, life expectancy in China was nearly 50; by 1960, Mao, with his ruthless collectivist policies, had chopped it to less than 30! Five years later, "once Mao had stopped killing people," it had risen to nearly 55. I highlight this for two reasons: (1) to point out what a moral monster Mao was, and (2) to credit Angus Deaton for not mincing words about Mao. You might think that this latter takes no courage. But I assure you, having been in academia a while, that although Mao's slaughter is well-documented, it's not common for academics, even ones who know the facts about Mao, to point out that he was a mass murderer. I recommend also that you watch this short interview of Deaton done by the Financial Times two years ago, and watch how, after Deaton calmly calls Mao out for his killing, the interviewer quickly changes topics. (It happens around the 3:10 mark.)

The critical:

Government-to-government foreign aid does nothing to help these things happen and, indeed, almost certainly makes governance in those countries worse. I certainly don't blame, though, and, indeed, I applaud, people who use their own money to help poor people in Africa and Asia. But here's what I find striking. Some serious economists have computed that relaxing immigration restrictions would create large gains for people in the receiving countries and, more important in this context, even larger gains for immigrants. You don't have to be an "open borders" advocate to realize that increasing immigration, with residency requirements for receiving welfare and getting to vote, would make a big dent in world poverty.

Economists have been on average much more positively disposed to immigration than the average American. Yet Deaton says nothing about loosening immigration restrictions as an effective means to reduce world poverty. Moreover, a search on his semi-annual Letters from America, in which he has commented on American public policy since 1996, yields exactly zero references to immigration.


And:
Deaton worries, much more than I do, about the increasing wealth inequality in the United States. He writes "To worry about these consequences of extreme inequality has nothing to do with being envious of the rich and everything to with the fear that rapidly growing top incomes are a threat to the wellbeing of everyone else." What are these consequences?

He writes: "The very wealthy have little need for state-provided education or health care; they have every reason to support cuts in Medicare and to fight any increases in taxes. They have even less reason to support health insurance for everyone, or to worry about the low quality of public schools that plagues much of the country. They will oppose any regulation of banks that restricts profits, even if it helps those who cannot cover their mortgages or protects the public against predatory lending, deceptive advertising, or even a repetition of the financial crisis.

Interestingly, though, Deaton gives no evidence that these are the concerns of the rich. I bet he would be surprised to know that according to exit polling data from 2006, 47 percent of those earning $100,000 or more voted Democrat and 52 percent voted Republican. That's not a large margin. What about the superrich? For every Charles Koch, there's a George Soros. Moreover, it's hard to see how raising marginal tax rates to, say, 60%, or imposing a wealth tax of, say, one percent annually would do much to change the voting patterns of "the rich." The reality is that polling data show that high-income and wealthy people, like most voters, don't generally vote their pocketbook. Instead, they vote their beliefs.

Deaton may think he has evidence. He writes: "Studies of congressional voting by the political scientists Larry Bartels and Martin Gilens have documented how votes in Congress from both sides of the aisle are sensitive to the wishes of rich constituents and not at all to the wishes of poor constituents."

But it doesn't follow that members of Congress cater to the narrow economic interests of the rich. To take one example, higher-income people tend to be more pro-free trade than lower-income people and Congressional votes reflect this preference. But in percentage terms, the biggest beneficiaries of the cheaper clothing, food, and fuel made possibly by free trade are the relatively low-income people.




COMMENTS (13 to date)
Andrew_FL writes:

I read that paragraph of Deaton and I think "He's saying the wealthy have no reason to favor bad policies. So what's the problem?"

He seems to just assume that policies which are supposedly intended to benefit lower income, "poor" people actually do benefit them, without critically examining this assumption at all.

But in reality plenty of wealthy people favor lots of policies Deaton wrongly assumes are beneficial to low income people. So what's the deal here?

Evidently while Deaton has trouble imagining what could motivate wealthy people other than increasing their own material wellbeing, the political motivations of the wealthy are more complex than he imagines.

Arguments from the limits of our imaginations in general, but particularly about what we imagine to go through the minds of others, are almost never correct because, to paraphrase J. B. S. Haldane, reality is not only stranger than we imagine, it is stranger than we can imagine.

I suspect though that in focusing on the voting patterns of the rich, you are not hitting on what he's concerned about. He's presumably more concerned about the political spending patterns of the rich. After all, no matter how much their incomes increase relative to everyone else, the 1% is still only 1% and their votes only amount to 1%. But as far as I'm aware, the spending patterns of the wealthy on politics are similar to their voting patterns, and don't skew toward a "favor their own material benefit" ideology.

Roger McKinney writes:

If Deaton is right about politicians and the rich, and I think he is, how was it possible to get all of the socialist legislation passed, the progressive income tax, social security, Medicare and medicaid, and all of the welfare programs? Also, the evidence shows that the wealthy give huge amounts of their wealth to charity, as did Bill Gates and Warren Buffet.

The answer lies in fear of envy mixed with guilt, according to Helmut Schoeck in Envy: A Theory of Social Behavior.

JLV writes:

The free trade example is not so great for your argument, I don't think. Free trade is a classic example of a Kaldor-Hicks improvement. While the benefits may be broadly spread (and hence disproportionately accrue to the bottom), the costs are concentrated at the bottom. So free trade and no side payments (the actual bundle of policies favored by the rich, as far as I can tell) does seem to be something in the narrow interest of the rich.

Khodge writes:

I have long considered immigration to be a problem because it reduces the human capital of the sending country. How much more improved could, say, Mexico be if their emmigrants returned and began demanding change? It is, of course a counterfactual where the answer is not clear but...

Mr. Econotarian writes:

"How much more improved could, say, Mexico be if their emmigrants returned and began demanding change? "

Illegal Mexican immigrants would never chose to go back to Mexico because they might never get back into the US.

I know illegal immigrant Mexicans who have not seen their children for 20 years, despite being a few hundreds miles away over a line on a map.

Now if we made it easier to immigrate to the US, we would also make it more likely that some immigrants would return to their home country at times.

I know legal immigrants from Central America who live in the US, but visit their birth country once or twice a year, sometimes for months at a time.

Thomas B writes:

Like Andrew_FL, I read the paragraph and thought, "he's saying the rich don't support bad policies - and the problem is...?"

Daublin writes:

It's nice to see this beginning from a major economist: "The very wealthy have little need for state-provided education or health care".

Why stop there, though? It is also true for people of the American middle class. In fact, it's true in two different ways.

The first way it's true is that the majority of Americans are buying health insurance via their own personal salaries. Thus Americans by and large insure themselves. This is in fact Obama's big idea about heath care in America: make it mandatory, rather than simply something that most people do.

The second way it's true really deserves more attention. Medical costs are down, if you focus just on interventions that are clearly effective. While a lot of people to incur medical costs above a few hundred thousand dollars, it's much less common that the purchased interventions are clearly a good idea. Many of those things just wouldn't be prescribed in the UK or in Canada because they aren't cost effective. They'd either be skipped entirely, or a more cost effective option would be chosen.

Nathan W writes:

On the 1950s famine which left 10-30 million dead.

1) Many people attribute this primarily to the fail policy of collectivization.

2) There was also a major drought, which significantly muddies the waters, since in an area of high population living at very near subsistence, even in an absence of policy blunders it might be expected that millions would have died anyways. How many millions died due to the famine itself and how many millions died as a direct result of the failed collectivization policy is not very easy to pinpoint.

3) It is argued that local officials, fearing that Mao would freak out (and perhaps kill them), never reported the horrific news to Mao. Arguably, Mao never had a clue that millions were dying in the famine until it had been going on for several years.

4) As an aside, the outside world learned about the famine because of all the dead bodies flowing down the river near Guangzhou.

(Sorry, no citations because I've read a bunch on this, but forget who said what)

5) As an update on what Chinese know about this. Well, I don't usually take it upon myself to inform Chinese of the downsides of their history. But on a few occasions while in China somehow or another this has come up in conversation. I might ask them something like "do you know how many people died in the famine in the 1950s?" Several people answered that they weren't aware of this at all, and the only person to venture a guess suggested that her high school text mentioned something in the range of tens of thousands, a thousandfold less than Western historians generally pinpoint as the figure. Turning off my vpn, I find that https://en.wikipedia.org/wiki/Great_Chinese_Famine is not blocked by the censors here anymore. More surprisingly, it is highly searchable in Baidu (but then again, if you're never heard of something that how would you end up searching for it?).

Robert Schadler writes:

Kudos to an earlier mention of Schoeck's Envy. A classic.

Henderson could be far more critical of Deaton's comments re: "the rich". 1. Is Deaton speaking as an economist? Seems not. 2. No real evidence; upper middle class is far more like his caricature than the truly rich. 3. Now that the Nobel Prize will make him "rich" will his own views change (e.g. opposing good public schools)? Doubtful. 4. Deaton denies "envy" (a psychological basis) to argue make a political argument (voting; legislation). But how people like Buffett and Gates detract from the well-being of the rest of us, is simply asserted and seems just a prejudice: it makes him "feel bad" that they are rich. If he wants to propose a policy, it would seem to lead to dis-enfranchising the rich to improve policy outcomes.

Phil writes:

Question for Mr. Econotarian:

Khodge wrote:

"How much more improved could, say, Mexico be if their emmigrants returned and began demanding change?"

To which you replied:

"Illegal Mexican immigrants would never chose to go back to Mexico because they might never get back into the US."

Why did you insert the adjective "illegal"?

mike davis writes:

David is right when he points out that the rich seem to vote their beliefs rather then their pocket books. But he’s wrong when he writes that “it's hard to see how raising marginal tax rates to, say, 60%, or imposing a wealth tax of, say, one percent annually would do much to change the voting patterns of "the rich." It’s not hard to see at all. At those rates the very rich might well come to regard the state as a menace. Their involvement in politics would change, probably turning them into the caricatures that Deaton incorrectly imagines them to be. (Or to put it another way, at some tax rate even George Soros will join the Tea Party.)

David R. Henderson writes:

@mike davis,
It’s not hard to see at all. At those rates the very rich might well come to regard the state as a menace. Their involvement in politics would change, probably turning them into the caricatures that Deaton incorrectly imagines them to be. (Or to put it another way, at some tax rate even George Soros will join the Tea Party.)
Touche.

Tiago writes:

David,
To be fair to Deaton on migration, he did write this in his last book:
“The effects of migration on poverty reduction dwarf those of free trade. Migrants who succeed in moving from poor countries to rich countries become better off than they were at home, and their remittances help their families to do better at home. Remittances have very different effects than aid, and they can empower recipients to demand more from their government, improving governance rather than undermining it.”

Comments for this entry have been closed
Return to top