Good Critical Thinking On Economic Principles AND Indices In Deaton’s Work

August Deaton’s Great Escape

One of the most recent and well-known works in the sphere of economic is Angus Deaton’s book called “Great Escape: Health, Wealth and the Origins of Inequality” for which the author was awarded the Nobel Prize in Economic Sciences. This fundamental work of his life deals with the issues of poverty and its impact on economic welfare of the state, in particular on concrete economic indices, such as GDP per capita, number of states which have to be provided with appropriate finance support, level of income which has to be fixed in a state willing to be called successful and so on. In this paper we will look at this work from the point of view of economics, analyzing which key economic issues this work deals with.
At the beginning of the book the author tries to show at microeconomic level the main target of his book – to make the principle of equity work. Deaton tells us a story from his childhood, namely from the period, when he was born in a mining facility village called South Yorkshire, in which most of children did not have even an opportunity to enter public school, except for Deaton, who thanks to his father managed to complete this goal. Later on he succeeded in entering the university, from which he successfully graduated. However, in this aspect he uses comparative scientific method consisting in showing similar and different features of two phenomena, personalities and so on. In his case, it was comparison with his relatives from the same village, who were not granted a possibility to study at school or at the university, even though they wanted. Nowadays, as Deaton summarizes his story, everybody is able to fulfill their educational needs, meaning they can “escape” in contrast to the period Deaton lived in.
After this he analyzes the same issue at macroeconomic level in context of industrial and developing states, putting the main accent on the issue of poverty, which cannot be dealt with by poor countries’ governments, meaning they have not managed “to escape”. Here the problem of certain economic principles arises, for instance those, defined by Gregory Mankiw, namely “country’s standard of living depends on its ability to produce goods and services” and “people face tradeoffs” (Mankiw, 2011)
Standard of living can be measured in different ways, for instance in accordance with personal incomes or by summarizing the total market value of the whole national production. How can it be succeeded and how this means will affect the society? Deaton analyzes this aspect in context of medicine and diseases, which exists largely in poor countries. The author says: “If the diseases of poor countries are indeed ‘diseases of poverty’ in the sense that they will vanish if poverty is reduced, then direct health interventions may be less important than economic growth. Economic growth would be ‘twice blessed’; it would increase material living standards directly and improve health as a bonus.” (Deaton, 2013).
The total idea here is that poor countries cannot deal with illnesses because of not having enough resources for that. Literally saying, they do not have enough money to open hospitals, to finance pharmaceutical initiatives as well as medical institutions so that they could provide people with new medicals necessary for them. Author makes three statements in this context
First one relates to the issue that nowadays we live in the most developed society ever existing, having more possibilities than anybody before (here author for the second time mentions his childhood), however, there are still countries, which remind us about “tough years”, where people are not even provided with water supply, but this fact is not completely understood by the developed countries.
In the second statements the accent is put on the actions of the developed countries in this aspect, how they try to help providing poor ones with aid. Here author criticizes the worldview of the West countries, which deal with effect, consequences, but do not pay attention to causes, for instance low level of GDP, CPI, the unemployment rate.
First one is measured by the sum of value added at all stages of production (Mankiw, 2011). Under the circumstances that nothing is opened and none of the national spheres is developed there is no supply for demand, thus the sum of values is not raised. Additionally, such state of affairs causes lack of investment thought it is necessary to develop national economy. Absence of the investments mean that at the same time there is no business investment from outside the country as well as inventory one, namely the economy is not stimulated. Here author criticizes developed countries as well as the World Bank for their approach towards this issue, since they often provide authoritative or totalitarian governments with financial support, knowing that this money will not be forwarded to the needs, it was given for.
The problem consists in the fact that governments do not put enough efforts to create developing atmosphere in such countries, they do not create the conditions for development, for raising of economic indices, even though certain correlation between them exists. In particular the correlation between the log of GDP per capita and life expectancy is 0.84 when countries are weighted by population (and only slightly lower if they are not weighted), when a doubling of GDP per capita being associated with an increase in life expectancy of roughly five years (Weil, 2015).
Other important datum is Consumer Price Index, which is a measure of the overall level of prices relative to their value during the based period. It is usually measured by using so-called “consumer’s basket”, which is a concrete list of product, purchased by a typical consumer. Under the circumstances of poverty and absence of economic development, people cannot be provided with all they need, meaning they totally buy only those goods, which are available. Thus, CPI is low in such countries.
High rate of unemployment is another feature of poor countries, well-known for everybody. Also this is one of the most important indices demonstrating whether government works effectively in economic sphere by, e.g., creating additional workplace. But here, according to different economic theories, the situation could be different and even biased, since “it raises the demand for skilled workers, but reduces it for unskilled workers, who will not have the symmetric benefits and effects: in contrast the rise in unemployment for the unskilled will be substantial, simultaneously for the skilled ones it will be small (Blanchard & Katz, 1996)
The third Deaton’s message relates to the issue that such state of affairs can lead to serious consequences for developed states. For instance, certain illnesses could spread, many immigrants, who will have to provide with social guarantees, will arrive and so on. So the principle of international equity has to be implemented.
Notwithstanding nowadays the situation is often interpreted in context of Pareto optimality principle, the idea of which is that a change represents an improvement if at least one person is made better off and no one worse off.
How could this situation be changed? How the economic principle “Governments can sometimes improve market outcomes according to Deaton”? Wealth is an answer. This is the way how people used to provoke positive changes in the field of medicine.
The examples are, for instance, “invention of certain cheap and effective instruments for managing high blood pressure were produced causing a massive decline in death rates from cardiovascular disease in developed countries after 1970; so-called oral rehydration therapy for diarrhea, invented in 1973 during a cholera outbreak in Bangladeshi and Indian refugee camps and so on” (Deaton, 2013).
The increase of certain economic indices could, as it has been mentioned, lead to positive results. It has been proven by Deaton’s research. Thus the goal of the states is to find out how to make their economy work so as to increase the rate of the main economic indices. The best way is to organize inventions due to certain governmental or non-governmental initiatives. “For optimal allocation to invention it would be necessary for the government or some other agency not governed by profit-and-loss criteria to finance research and invention” (Arrow, 1962)
But also author draws our attention to education, which he claims, is even more important than money. The example of application of knowledge is illustrated by certain statistical data: “in the late nineteenth century, prior to the widespread acceptance of the germ theory of disease, the children of doctors and teachers had only slightly lower mortality rates than average, notwithstanding by 1925, when knowledge about how to control infection was available to be applied, such children had mortality rates that were one-third below average” (Deaton, 2013)
If two elements – wealth and education – will exist in harmony, the economic indexes will be high as well, so this has to be the central issue of the governments, central targets of their state’s policy.
Thus, we can conclude that, in fact, there are different theories dealing with economic indices and their estimation, however we have found out the main thing: how to organize the state affairs in such way to make them high. We have concluded that the main thing is to create appropriate conditions for development within the state jurisdiction and in context of financial aid for the developing countries we have come to the conclusion that we need to cope with causes, not with the consequences, as it is being done now.

References

Arrow, J. Kenneth (1962) Economic Welfare and the Allocation of Resources for Invention. National Bureau of Economic Research. Retrieved from:
http://www.nber.org/chapters/c2144.pdf
Blanchard, Oliver & Katz, F. Lawrence (1996) What we know and do not know about the Natural Rate of Unemployment. National Bureau of Economic Research 5822. Retrieved from: http://www.nber.org/papers/w5822.pdf
Deaton, Angus. (2013) The Great Escape: Health, Wealth, and the Origins of Inequality Princeton University Press, Princeton, New Jersey Print.
Mankiw, N. Gregory (2011) Principles of Economics, 5th edition. South-western Cengage Learning. Print.
Weil, David N.(2015) A Review of Angus Deaton’s The Great Escape: Health, Wealth, and the Origins of Inequality. Journal of Economic Literature 53(1). Retrieved from:
http://www.econ.brown.edu/faculty/David_Weil/Weil%20Review%20of%20Deaton%20The%20Great%20Escape.pdf