This is why Angus Deaton just won the Nobel Prize in economics

Angus Deaton, a 69-year old Scottish-American professor of economics at Princeton University, just won the Nobel prize in his subject.

Here’s what he’s all about.

He’s a microeconomist and he studies consumer choices, with a focus on issues like health, poverty and inequality. Here’s his back catalogue of academic work.

And here’s the citation from the Royal Swedish Academy of Science’s announcement:

To design economic policy that promotes welfare and reduces poverty, we must first understand individual consumption choices. More than anyone else, Angus Deaton has enhanced this understanding. By linking detailed individual choices and aggregate outcomes, his research has helped transform the fields of microeconomics, macroeconomics, and development economics.

Two years ago, Deaton published a book on the development of economies called “The Great Escape: Health, Wealth, and the Origins of Inequality,” described as “a must-read for anyone interested in the wealth and health of nations” by Daron Acemoglu, the author of “Why Nations Fail.”

Here’s what the New York Times said about it:

Deaton, a respected professor of economics at Princeton, does not stint on describing the world’s problems, be they income inequality in rich countries, health problems in China and the United States or H.I.V. in Africa. Large sections of the book revolve around such troubles and potential solutions. Yet Deaton’s central message is deeply positive, almost gloriously so. By the most meaningful measures — how long we live, how healthy and happy we are, how much we know — life has never been better. Just as important, it is continuing to improve.

One of his notable technical achievements was the Almost Ideal Demand System (AIDS), which was a major achievement in understanding consumer behaviour.

In his early work around 1980, Deaton developed the Almost Ideal Demand System — a flexible, yet simple, way of estimating how the demand for each good depends on the prices of all goods and on individual incomes. His approach and its later modifications are now standard tools, both in academia and in practical policy evaluation.

Deaton’s 1980s studies, including one called “Why is consumption so smooth?” gave birth to a concept called the Deaton Paradox — in short, sharp shocks to income didn’t seem to cause similarly large shocks to consumption. That was an important development in understanding how consumers acted, causing economists to rethink the “permanent income hypothesis” developed by Milton Friedman, which suggested that people spend based on their lifetime income.

More academic books like “Understanding Consumption” became benchmarks in the understanding of consumers in economics.

Deaton is also an opponent of foreign aid, though not unequivocally. He’s outlined some of his views on the subject in this piece:

Foreign aid — transfers from rich countries to poor countries — has much to its credit, particularly in terms of health care, with many people alive today who would otherwise be dead. But foreign aid also undermines the development of local state capacity.

Previous winners of the Nobel prize in economics have included Paul Krugman and Friedrich von Hayek.

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